Advanced Search
MyIDEAS: Login

Overoptimism, Boom-Bust Cycles and Monetary Policy in Small Open Economies

In: Monetary Policy under Uncertainty and Learning

Contents:

Author Info

  • Manuel Marfán

    (Banco Central de Chile)

  • Juan Pablo Medina

    (Banco Central de Chile)

  • Claudio Soto

    (Banco Central de Chile)

Abstract

This paper analyzes boom-bust cycles in emerging market economies triggered by missperception about future productivity. Using a small open economy DSGE model we show that non-materialized news about future productivity improvements (i.e. overoptimism) generate boom-bust cycles that replicate the stylized facts of several emerging economies during the 1990s. We report simulation results for a boom-bust cycle under alternative monetary policy rules. In this context, we show that if the central bank tries to stabilize output, there would be a large real appreciation of the currency and a deep contraction in the tradable goods sector. When the central bank follows a more strict inflation targeting regime, the boom-bust pattern in major aggregate variables would be exacerbated. Finally, if the central bank attempts to sustain the real exchange rate, the perverse effects on the domestic tradable goods sector are only prevented in the short-run, but the boom-bust cycle in other variables is amplified.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bcentral.cl/estudios/banca-central/pdf/v13/Vol13_563-600.pdf
Download Restriction: no

Bibliographic Info

as in new window

This chapter was published in: Klaus Schmidt-Hebbel & Carl E. Walsh & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.) Monetary Policy under Uncertainty and Learning, , chapter 14, pages 563-600, 2009.

This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v13c14pp563-600.

Handle: RePEc:chb:bcchsb:v13c14pp563-600

Contact details of provider:
Postal: Casilla No967, Santiago
Phone: (562) 670 2000
Fax: (562) 698 4847
Web page: http://www.bcentral.cl/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Fredj Jawadi & Sushanta K. Mallick & Ricardo M. Sousa, 2011. "Monetary Policy Rules in the BRICS: How Important is Nonlinearity?," NIPE Working Papers 18/2011, NIPE - Universidade do Minho.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:chb:bcchsb:v13c14pp563-600

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.