Estimating Models for Monetary Policy Analysis in Emerging Countries
Abstract
We estimate a DSGE model of an emerging country containing many frictions that, as has been recently argued, impose non-trivial constraints for monetary-policy design in these economies. In particular, our framework features a sectoral decomposition of the productive sector, the use of intermediate inputs, imperfect pass-through, endogenous premium to finance capital accumulation, balance sheet effects due to liability dollarization, currency substitution, price and wage stickiness, and dynamics driven by eleven shocks. We use a Bayesian approach to Mexican data to address three main questions: i) can the model satisfactorily fit the data? Our answer is generally yes, with some caveats; ii) are the estimated parameters similar to those usually calibrated in policy-related studies? The answer is negative, particularly for those describing financial frictions, price stickiness and money demand. Finally, which of the emerging-markets’ frictions are more relevant in fitting the data? We find that including intermediate inputs is most important, while currency substitution does not seem to play a major role. Moreover, financial frictions and liability dollarization are also relevant.Download Info
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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 561.Length:
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:chb:bcchwp:561
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Selim Elekdag & Harun Alp, 2011. "The Role of Monetary Policy in Turkey during the Global Financial Crisis," IMF Working Papers 11/150, International Monetary Fund.
- Nan Li & Ceyhun Bora Durdu & Emine Boz, 2010.
"Labor Market Search in Emerging Economies,"
2010 Meeting Papers
255, Society for Economic Dynamics.
- Emine Boz & Ceyhun Bora Durdu & Nan Li, 2009. "Labor market search in emerging economies," International Finance Discussion Papers 989, Board of Governors of the Federal Reserve System (U.S.).
- Selim Elekdag & Subir Lall & Harun Alp, 2012. "An Assessment of Malaysian Monetary Policy during the Global Financial Crisis of 2008-09," IMF Working Papers 12/35, International Monetary Fund.
- Harun Alp & Selim Elekdag, 2012. "Shock Therapy! What Role for Thai Monetary Policy?," IMF Working Papers 12/269, International Monetary Fund.
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