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Systemic Risk, Aggregate Demand, and Commodity Prices:An Application to Colombia


  • Javier Guillermo Gómez-Pineda
  • Juan Manuel Julio-Román


We embed a small open economy model for Colombia into the systemic risk model of GGT (2014). The small open economy model is estimated by Bayesian methods and used for analysis and projections. The model enable us to give a consistent treatment of shocks to systemic risk, country risk, and oil and commodity prices. The treatment is consistent because the shocks affect the global economy, not only exogenous “rest of the world” variables. The priors are found by analyzing impulse response functions, the evolution of latent variables, equation fit, error decompositions, and model forecast performance. Among the findings are that the identified episodes of retrenchment and bouyancy in systemic risk were transmitted to Colombia’s country risk premium and that systemic risk shocks are important drivers of Colombia’s output and unemployment gaps. Finally, aggregate demand-related shocks are not important as drivers of non-core inflation in Colombia, in contrast with the findings for other countries.

Suggested Citation

  • Javier Guillermo Gómez-Pineda & Juan Manuel Julio-Román, 2014. "Systemic Risk, Aggregate Demand, and Commodity Prices:An Application to Colombia," Borradores de Economia 859, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:borrec:859
    DOI: 10.32468/be.859

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    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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