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A Dynamic Stochastic General Equilibrium Model with Dollarization for the Peruvian Economy

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Author Info

  • Castillo, Paul

    ()
    (Banco Central de Reserva del Perú)

  • Montoro, Carlos

    ()
    (Banco Central de Reserva del Perú)

  • Tuesta, Vicente

    (Banco Central de Reserva del Perú)

Abstract

This paper develops a dynamic stochastic general equilibrium model, which is calibrated for the Peruvian economy and can be useful for the design and analysis of monetary policy. The model includes a second currency that replaces partially the domestic currency in its functions of unit of account, medium of payment and reserve of value; phenomenon known in the economic literature as partial dollarization. We also include certain real, nominal and financial rigidities to replicate the empirical regularities of the Peruvian macroeconomic data. The model reproduces relatively well the main stylized facts of the Peruvian economy. Moreover, we show how dollarization reduces the power of monetary policy to affect output and increase the vulnerability of the economic activity to foreign shocks. Furthermore, we perform some exercises that show the importance of credibility in the actions of the monetary authority to anchor expectations and to reduce deviation in the inflation rate.

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Bibliographic Info

Paper provided by Banco Central de Reserva del Perú in its series Working Papers with number 2009-003.

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Date of creation: Mar 2009
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Handle: RePEc:rbp:wpaper:2009-003

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Related research

Keywords: Modelos de Equilibrio General; Dolarización Parcial; Perú;

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Cited by:
  1. Barbara Annicchiarico & Fabio Di Dio & Francesco Felici & Francesco Nucci, . "Macroeconomic Modelling and the Effects of Policy Reforms: an Assessment for Italy using ITEM and," Working Papers 1, Department of the Treasury, Ministry of the Economy and of Finance.

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