This paper incorporates a financial accelerator mechanism in a small open economy macro model with money and nominal price rigidities. Our goal is to explore the connection between financial distress that feeds into the real economy and the exchange rate regime. Our principle finding is that...

A number of authors have recently emphasized that the conventional model of unemployment dynamics due to Mortensen and Pissarides has difficulty accounting for the relatively volatile behavior of labor market activity over the business cycle. We address this issue by modifying the MP framework...