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

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  • Camilo E Tovar

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.

Suggested Citation

  • Camilo E Tovar, 2006. "Devaluations, output and the balance sheet effect: a structural econometric analysis," BIS Working Papers 215, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:215
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    References listed on IDEAS

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    Cited by:

    1. Fernando Tenjo & Martha López, 2010. "Early Warning Indicators for Latin America," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 28(63), pages 232-259, December.
    2. Purva Khera, 2016. "Macroeconomic Impacts of Gender Inequality and Informality in India," IMF Working Papers 16/16, International Monetary Fund.
    3. 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.
    4. Camilo E Tovar, 2005. "The mechanics of devaluations and the output response in a DSGE model: how relevant is the balance sheet effect?," BIS Working Papers 192, Bank for International Settlements.
    5. Carlos Garcia & Jorge Restrepo & Scott Roger, 2009. "Hybrid Inflation Targeting Regimes," IMF Working Papers 09/234, International Monetary Fund.
    6. Camilo E Tovar, 2010. "Currency collapses and output dynamics: a long-run perspective," BIS Quarterly Review, Bank for International Settlements, June.
    7. Javier García-Cicco & Markus Kirchner & Santiago Justel, 2014. "Financial Frictions and the Transmission of Foreign Shocks in Chile," Working Papers Central Bank of Chile 722, Central Bank of Chile.
    8. Ali Dib & Ian Christensen, 2005. "Monetary Policy in an Estimated DSGE Model with a Financial Accelerator," Computing in Economics and Finance 2005 314, Society for Computational Economics.
    9. Carlos Garcia & Jorge Restrepo & Scott Roger, 2009. "Hybrid Inflation Targeting Regimes1," ILADES-Georgetown University Working Papers inv226, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
    10. Alberto Ortiz Bolaños, 2013. "Credit Market Shocks, Monetary Policy, and Economic Fluctuations," Monetaria, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 317-369, July-Dece.
    11. David Fernando LOPEZ ANGARITA, 2006. "Nivel óptimo de Reservas Internacionales y crisis cambiaria en Colombia," ARCHIVOS DE ECONOMÍA 003273, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    12. Garcia, Carlos J. & Restrepo, Jorge E. & Roger, Scott, 2011. "How much should inflation targeters care about the exchange rate?," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1590-1617.
    13. repec:eee:jimfin:v:81:y:2018:i:c:p:159-184 is not listed on IDEAS

    More about this item

    Keywords

    structural estimation; DSGE; financial accelerator; devaluations; balance sheet effect; interest rate rule; exchange rate target; new open economy macroeconomics;

    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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