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Devaluations, output and the balance sheet effect: a structural econometric analysis

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  • Camilo E Tovar

Abstract

This paper estimates a new open economy macroeconomic model for South Korea to determine the output effect of currency devaluations. Three transmission mechanisms are considered: the expenditure-switching, the balance sheet, and a monetary channel associated to a nominal exchange rate target. Devaluations are defined as an increase in this target. This allows to isolate the effects of an explicit exogenous devaluationary policy shock. Ceteris paribus, a devaluation is found to be expansionary. Output contractions in South Korea should then be associated with a different shock such as an adverse shock on the international interest rate or on export demand.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 215.

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Length: 44 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:bis:biswps:215

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Keywords: structural estimation; DSGE; financial accelerator; devaluations; balance sheet effect; interest rate rule; exchange rate target; new open economy macroeconomics;

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References

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Citations

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Cited by:
  1. Garcia, Carlos J. & Restrepo, Jorge E. & Roger, Scott, 2011. "How much should inflation targeters care about the exchange rate?," Journal of International Money and Finance, Elsevier, Elsevier, vol. 30(7), pages 1590-1617.
  2. Fernando Tenjo & Martha López, 2010. "Early Warning Indicators for Latin America""," BORRADORES DE ECONOMIA, BANCO DE LA REPÚBLICA 007073, BANCO DE LA REPÚBLICA.
  3. Camilo E Tovar, 2010. "Currency collapses and output dynamics: a long-run perspective," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, June.
  4. Ian Christensen & Ali Dib, 2008. "The Financial Accelerator in an Estimated New Keynesian Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 155-178, January.
  5. Carlos Garcia & Jorge Restrepo & Scott Roger, 2009. "Hybrid Inflation Targeting Regimes," IMF Working Papers, International Monetary Fund 09/234, International Monetary Fund.
  6. Ali Dib & Ian Christensen, 2005. "Monetary Policy in an Estimated DSGE Model with a Financial Accelerator," Computing in Economics and Finance 2005, Society for Computational Economics 314, Society for Computational Economics.
  7. Alberto Ortiz Bolaños & Last: Ortiz Bolaños, 2012. "Credit Market Shocks, Monetary Policy, and Economic Fluctuations," Documentos de Investigación - Research Papers, Centro de Estudios Monetarios Latinoamericanos, CEMLA 6, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
  8. Carlos Garcia & Jorge Restrepo & Scott Roger, 2009. "Hybrid Inflation Targeting Regimes1," ILADES-Georgetown University Working Papers, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines inv226, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
  9. Javier García-Cicco & Markus Kirchner & Santiago Justel, 2014. "Financial Frictions and the Transmission of Foreign Shocks in Chile," Working Papers Central Bank of Chile, Central Bank of Chile 722, Central Bank of Chile.
  10. Camilo E Tovar, 2005. "The mechanics of devaluations and the output response in a DSGE model: how relevant is the balance sheet effect?," BIS Working Papers, Bank for International Settlements 192, Bank for International Settlements.

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