We used a dynamic two-country optimizing model featuring a labor-market friction to analyze the implications of financial market integration for the propagation of macroeconomic policies in an open economy. Our main result is that the labor-market friction we analyzed substantially reduces the...

We used a two-country optimizing "new-open-economy macroeconomics" model to analyze the implications of financial market integration for the fiscal multiplier. The fiscal multiplier measures the accumulated effect of fiscal policy on output. Our model features a labor-market friction in the form...

Based on a dynamic stochastic general equilibrium model featuring a labour-market friction in the form of costs of adjusting hours, we analyse how financial market integration affects the propagation of monetary policy in an open economy. The main result of our analysis is that costs of...