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

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Author Info
Camilo E Tovar

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

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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  1. 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, vol. 11(1), pages 155-178, January. [Downloadable!] (restricted)
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This page was last updated on 2009-11-20.

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