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Financial Accelerator Mechanism in a Small Open Economy

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  • Martha R. López

    ()

  • Juan D. Prada

    ()

  • Norberto Rodríguez N.

    ()

Abstract

Using Bayesian estimation techniques, we estimate a small open economy DSGE model with credit-market imperfections for the Colombian economy. Using the estimated model we investigate what are the sources of business cycle fluctuations. We show that balance-sheet effects play an important role in explaining recent Colombian business cycles. We then perform a counterfactual exercise that shows that fixed exchange rate regime could have exacerbated the financial distress in the economy between 1998-1999.

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Bibliographic Info

Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 525.

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Handle: RePEc:bdr:borrec:525

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Related research

Keywords: DSGE modelling; Financial Accelerator; Bayesian Estimation. Classification JEL: C11; C15; E32; E44; E52.;

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References

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  1. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  2. Peter N. Ireland, 2002. "Endogenous Money or Sticky Prices?," NBER Working Papers 9390, National Bureau of Economic Research, Inc.
  3. Mark Gertler & Simon Gilchrist & Fabio M. Natalucci, 2003. "External constraints on monetary policy and the financial accelerator," BIS Working Papers 139, Bank for International Settlements.
  4. Bernal Raquel, 2003. "Monetary Policy Rules in Colombia," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE.
  5. Roberto Chang & Andres Velasco, 1998. "Financial crises in emerging markets: a canonical model," Working Paper 98-10, Federal Reserve Bank of Atlanta.
  6. Ben Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 17-51.
  7. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
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Cited by:
  1. Fernando Tenjo & Martha López, 2010. "Early Warning Indicators for Latin America""," BORRADORES DE ECONOMIA 007073, BANCO DE LA REPÚBLICA.
  2. Lavan Mahadeva & Javier Gómez Pineda, 2009. "The international cycle and Colombian monetary policy," BORRADORES DE ECONOMIA 005406, BANCO DE LA REPÚBLICA.
  3. Juan David Prada Sarmiento, . "Financial Intermediation and Monetary Policy in a Small Open Economy," Borradores de Economia 531, Banco de la Republica de Colombia.
  4. Johana Maritsa Hernández Henao & Last: Hernández Henao, 2013. "Demanda externa, términos de intercambio y el papel de la política monetaria durante la crisis de 2008," Documentos de Investigación - Research Papers 7, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
  5. Ramiro Rodríguez Revilla, 2011. "Modelos de equilibrio general dinámicos y estocásticos para Colombia 1995-2011," REVISTA ECOS DE ECONOMÍA, UNIVERSIDAD EAFIT.

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