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Financial Accelerator Mechanism in a Small Open Economy

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  • Martha R. López

    ()

  • Juan D. Prada

    ()

  • Norberto Rodríguez Niño

    ()

Abstract

Using Bayesian estimation techniques, we estimate a small open economyDSGE model with credit-market imperfections for the Colombian economy. Us-ing the estimated model we investigate what are the sources of business cycle°uctuations. We show that balance-sheet e®ects play an important role in ex-plaining recent Colombian business cycles. We then perform a counterfactualexercise that shows that ¯xed exchange rate regime could have exacerbated the¯nancial distress in the economy between 1998-1999.

Suggested Citation

  • Martha R. López & Juan D. Prada & Norberto Rodríguez Niño, 2008. "Financial Accelerator Mechanism in a Small Open Economy," BORRADORES DE ECONOMIA 004992, BANCO DE LA REPÚBLICA.
  • Handle: RePEc:col:000094:004992
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    References listed on IDEAS

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    1. Ireland, Peter N., 2003. "Endogenous money or sticky prices?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1623-1648, November.
    2. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393, Elsevier.
    3. Roberto Chang & Andres Velasco, 1998. "Financial crises in emerging markets: a canonical model," FRB Atlanta Working Paper 98-10, Federal Reserve Bank of Atlanta.
    4. Mark Gertler & Simon Gilchrist & Fabio M. Natalucci, 2007. "External Constraints on Monetary Policy and the Financial Accelerator," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 295-330, March.
    5. Simon Hall, 2001. "Financial accelerator effects in UK business cycles," Bank of England working papers 150, Bank of England.
    6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    7. Ben S. Bernanke & Mark Gertler, 1999. "Monetary policy and asset price volatility," Economic Review, Federal Reserve Bank of Kansas City, vol. 84(Q IV), pages 17-51.
    8. Ichiro Fukunaga, 2002. "Financial Accelerator Effects in Japan's Business Cycles," Bank of Japan Working Paper Series Research and Statistics D, Bank of Japan.
    9. Bernal Raquel, 2003. "Monetary Policy Rules in Colombia," Revista Desarrollo y Sociedad, Universidad de los Andes - CEDE, March.
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    Citations

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    Cited by:

    1. Fernando Tenjo & Martha López, 2010. "Early Warning Indicators for Latin America," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República - ESPE, vol. 28(63), pages 232-259, December.
    2. Georgiadis, Georgios & Jančoková, Martina, 2017. "Financial globalisation, monetary policy spillovers and macro-modelling: tales from 1001 shocks," Working Paper Series 2082, European Central Bank.
    3. Georgiadis, Georgios & Jančoková, Martina, 2020. "Financial globalisation, monetary policy spillovers and macro-modelling: Tales from 1001 shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 121(C).
    4. Ramiro Rodríguez Revilla, 2011. "Modelos de equilibrio general dinámicos y estocásticos para Colombia 1995-2011," Revista Ecos de Economía, Universidad EAFIT, December.
    5. Freystätter, Hanna, 2010. "Financial market disturbances as sources of business cycle fluctuations in Finland," Research Discussion Papers 5/2010, Bank of Finland.
    6. Juan David Prada Sarmiento, 2008. "Financial Intermediation and Monetary Policy in a Small Open Economy," Borradores de Economia 531, Banco de la Republica de Colombia.
    7. Martha R. Lã“Pez & Juan David Prada, 2010. "Optimal Monetary Policy and Asset Prices: The case of Colombia," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República - ESPE, vol. 28(61), pages 167-197, August.
    8. Lavan Mahadeva & Javier Gómez Pineda, 2009. "The international cycle and Colombian monetary policy," BORRADORES DE ECONOMIA 005406, BANCO DE LA REPÚBLICA.
    9. Johana Maritsa Hernández Henao, 2013. "Demanda externa, términos de intercambio y el papel de la política monetaria durante la crisis de 2008," Documentos de Investigación - Research Papers 7, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    10. Carlos Rojas Q., 2018. "Política monetaria óptima bajo inestabilidad financiera en economías emergentes," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 21(1), pages 068-117, April.

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    More about this item

    Keywords

    DSGE modelling; Financial Accelerator; Bayesian Estimation.;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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