Central Bank of Chile paper finds benefits to financial exclusion

Central Bank of Chile
Photo: Central Bank of Chile/Wikimedia Commons

A working paper, published by the Central Bank of Chile in July, assesses the welfare implications of restricting access to external financial markets in countries with pegged currencies, noting that this is of particular importance for peripheral European countries.

The authors, Stephanie Schmitt-Grohé and Martín Uribe, use a dynamic model of an emerging economy to show that a negative shock causes involuntary unemployment where wage rigidities combine with a fixed exchange rate. The paper then

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