Global Financial Risk, Domestic Financial Access, and Unemployment Dynamics

Epstein, Brendan and Finkelstein Shapiro, Alan and Gonzalez Gomez, Andres (2018): Global Financial Risk, Domestic Financial Access, and Unemployment Dynamics.

Abstract

We empirically show that after an increase in global financial risk, the response of unemployment is markedly more subdued in emerging economies (EMEs) relative to small open advanced economies (SOAEs), while the differential response of GDP and investment across the two country groups is noticeably smaller, if at all, in EMEs. A model with banking frictions, frictional unemployment, and household and firm heterogeneity in financial inclusion can help rationalize these facts. Limited financial inclusion among households is central to explaining the differ- ential response of unemployment in EMEs amid global financial risk shocks.

• Item Type: MPRA Paper
• Language: English
• Keywords: Emerging economies, business cycles, unemployment, labor search frictions, financial frictions, financial inclusion.
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics

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