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Evidence for a Financial Accelerator in a Small Open Economy,and Implications for Monetary Policy

  • Martha López

    ()

  • Juan David Prada

    ()

  • Norberto Rodríguez

    ()

Using Bayesian estimation techniques, we estimatea small open economy dynamic stochastic generalequilibrium model with credit-market imperfectionsfor the Colombian economy. We show thatthe combination of balance sheet effects and thechoice of monetary policy regime are likely to playan important role in the magnification and propagationof initial shocks to the Colombian economy.As an application we show that our model explainsthe 1998-1999 crisis in Colombia, when a sharp risein spreads on a relatively small proportion of internationaldebt were passed strongly onto domesticlending rates, provoking a severe recession.

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File URL: http://www.banrep.gov.co/sites/default/files/publicaciones/archivos/espe_060-1.pdf
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Article provided by BANCO DE LA REPÚBLICA - ESPE in its journal ENSAYOS SOBRE POLÍTICA ECONÓMICA.

Volume (Year): 27 (2009)
Issue (Month): 60 (December)
Pages: 12-45

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Handle: RePEc:col:000107:007813
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  1. N/A, 2002. "Documents," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 3(2), pages 336-337, September.
  2. Anonymous, 0. "Economic Development And Aid," Increasing Understanding of Public Problems and Policies, Farm Foundation.
  3. Anonymous, 0. "Economic Growth Through Regional Associations," Increasing Understanding of Public Problems and Policies, Farm Foundation.
  4. Ben Bernanke & Mark Gertler, 2000. "Monetary Policy and Asset Price Volatility," NBER Working Papers 7559, National Bureau of Economic Research, Inc.
  5. repec:tep:teppwp:wp1215 is not listed on IDEAS
  6. N/A, 2002. "Documents," South Asian Survey, , vol. 9(2), pages 287-304, September.
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