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Credit crunch in a small open economy

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  • Brzoza-Brzezina, Michał
  • Makarski, Krzysztof

Abstract

We construct an open-economy DSGE model with a banking sector to analyze the impact of the recent credit crunch on a small open economy. In our model the banking sector operates under monopolistic competition, collects deposits and grants collateralized loans. Collateral effects amplify monetary policy actions, interest rate stickiness dampens the transmission of interest rates, and financial shocks generate non-negligible real and nominal effects. As an application we estimate the model for Poland–a typical small open economy. According to the results, financial shocks had a substantial, though not overwhelming, impact on the Polish economy during the 2008/09 crisis, lowering GDP by approximately 1.5 percent.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 30 (2011)
Issue (Month): 7 ()
Pages: 1406-1428

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Handle: RePEc:eee:jimfin:v:30:y:2011:i:7:p:1406-1428

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Credit crunch; Monetary policy; DSGE with banking sector;

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References

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  1. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper 0107, Federal Reserve Bank of Cleveland.
  2. Adolfson, Malin & Laseen, Stefan & Linde, Jesper & Villani, Mattias, 2007. "Bayesian estimation of an open economy DSGE model with incomplete pass-through," Journal of International Economics, Elsevier, vol. 72(2), pages 481-511, July.
  3. David Altig & Lawrence Christiano & Martin Eichenbaum & Jesper Linde, 2011. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 225-247, April.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. MichaÅ? Brzoza-Brzezina
    by Metablog Obserwatora Finansowego in Obserwator Finansowy on 2009-12-10 11:59:58
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Frantisek Brazdik & Michal Hlavacek & Ales Marsal, 2011. "Survey of Research on Financial Sector Modeling within DSGE Models: What Central Banks Can Learn from It," Research and Policy Notes 2011/03, Czech National Bank, Research Department.
  2. Rafael Gerke & Magnus Jonsson & Martin Kliem & Marcin Kolasa & Pierre Lafourcade & Alberto Locarno & Krzysztof Makarski & Peter McAdam, 2012. "Assessing macro-financial linkages: a model comparison exercise," National Bank of Poland Working Papers 110, National Bank of Poland, Economic Institute.
  3. Michał Brzoza-Brzezina & Marcin Kolasa, 2012. "Bayesian evaluation of DSGE models with financial frictions," National Bank of Poland Working Papers 109, National Bank of Poland, Economic Institute.
  4. Michał Brzoza-Brzezina & Marcin Kolasa & Krzysztof Makarski, 2011. "The anatomy of standard DSGE models with financial frictions," National Bank of Poland Working Papers 80, National Bank of Poland, Economic Institute.
  5. Kónya, István & Benczúr, Péter, 2013. "Kamatfelár, hitelválság és mérlegalkalmazkodás egy kis, nyitott gazdaságban
    [Interest premium, credit crisis and balance-sheet adjustment in a small open economy]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 940-964.
  6. PIROVANO, Mara, 2013. "Household and firm leverage, capital flows and monetary policy in a small open economy," Working Papers 2013014, University of Antwerp, Faculty of Applied Economics.
  7. Senderski, Marcin, 2011. "Justifiable Thrift or Feverish Animal Spirits: What Stirred the Corporate Credit Crunch in Poland?," MPRA Paper 43674, University Library of Munich, Germany.
  8. Afanasyeva, Elena & Karasulu, Meral, 2013. "Interactions of Monetary and Macroprudential Policies in a Model of the Korean Economy," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79884, Verein für Socialpolitik / German Economic Association.
  9. Michał Brzoza-Brzezina & Krzysztof Makarski & Grzegorz Wesołowski, 2012. "Would it have paid to be in the eurozone?," National Bank of Poland Working Papers 128, National Bank of Poland, Economic Institute.
  10. Brzoza-Brzezina, Michał & Chmielewski, Tomasz & Niedźwiedzińska, Joanna, 2010. "Substitution between domestic and foreign currency loans in Central Europe. Do central banks matter?," Working Paper Series 1187, European Central Bank.

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