IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

A small open economy New Keynesian model for a foreign exchange constrained economy

  • Senbeta, Sisay

Firms in many low income countries depend entirely on imported capital and intermediate inputs. As a result, in these countries economic activity is considerably influenced by the capacity of the economy to import these inputs which, in turn, depends on the availability and cost of foreign exchange. In this study we introduce foreign exchange availability as an additional constraint faced by firms into an otherwise standard small open economy New Keynesian DSGE model. The model is then calibrated for a typical Sub Saharan African economy and the behaviour of the model in response to both domestic and external shocks is compared with the standard model. The impulse responses of the two models show that the modified model generates more variability in most of the variables considered than the standard model. This behaviour of the modified model seems to correspond to the stylized facts of low income countries.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://mpra.ub.uni-muenchen.de/29996/1/MPRA_paper_29996.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29996.

as
in new window

Length:
Date of creation: 31 Mar 2011
Date of revision:
Handle: RePEc:pra:mprapa:29996
Contact details of provider: Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Cashin, Paul & McDermott, C. John & Pattillo, Catherine, 2004. "Terms of trade shocks in Africa: are they short-lived or long-lived?," Journal of Development Economics, Elsevier, vol. 73(2), pages 727-744, April.
  2. Edward F. Buffie & Stephen A. O'Connell & Catherine A. Pattillo & Christopher Adam, 2007. "Monetary Policy Rules for Managing Aid Surges in Africa," IMF Working Papers 07/180, International Monetary Fund.
  3. Ara Stepanyan & Era Dabla-Norris & Ashot Anatolii Mkrtchyan, 2009. "A New Keynesian Model of the Armenian Economy," IMF Working Papers 09/66, International Monetary Fund.
  4. Brian Snowdon & Howard R. Vane, 2005. "Modern Macroeconomics," Books, Edward Elgar, number 3092.
  5. Paul Collier & Stefan Dercon & Marcel Fafchamps, 2000. "Credit Constraints in Manufacturing Enterprises in Africa," Economics Series Working Papers WPS/2000-24, University of Oxford, Department of Economics.
  6. Schmitt-Grohé, Stephanie & Uribe, Martín, 2002. "Closing Small Open Economy Models," CEPR Discussion Papers 3096, C.E.P.R. Discussion Papers.
  7. Paul Collier & Jan Willem Gunning, 1998. "Explaining African economic performance," Economics Series Working Papers WPS/1997-02.2, University of Oxford, Department of Economics.
  8. Galí, Jordi, 2010. "Monetary Policy and Unemployment," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 10, pages 487-546 Elsevier.
  9. Troy Matheson, 2006. "Assessing the fit of small open economy DSGEs," Reserve Bank of New Zealand Discussion Paper Series DP2006/11, Reserve Bank of New Zealand.
  10. M. Ayhan Kose & Raymond Riezman, 2013. "Trade shocks and macroeconomic fluctuations in Africa," World Scientific Book Chapters, in: International Trade Agreements and Political Economy, chapter 19, pages 369-394 World Scientific Publishing Co. Pte. Ltd..
  11. Cooley, Thomas F, 1997. "Calibrated Models," Oxford Review of Economic Policy, Oxford University Press, vol. 13(3), pages 55-69, Autumn.
  12. Jordi Galé, 2010. "Monetary Policy and Unemployment," Working Papers 435, Barcelona Graduate School of Economics.
  13. Kose, M. Ayhan, 2002. "Explaining business cycles in small open economies: 'How much do world prices matter?'," Journal of International Economics, Elsevier, vol. 56(2), pages 299-327, March.
  14. Shanaka J. Peiris & Magnus Saxegaard, 2007. "An Estimated Dsge Model for Monetary Policy Analysis in Low-Income Countries," IMF Working Papers 07/282, International Monetary Fund.
  15. Polterovich, Victor & Popov, Vladimir, 2003. "Accumulation of Foreign Exchange Reserves and Long Term Growth," MPRA Paper 20069, University Library of Munich, Germany.
  16. Lensink, Robert, 1995. "Foreign exchange constraints and developing countries," Economic Modelling, Elsevier, vol. 12(2), pages 179-191, April.
  17. Marcel Fafchamps, 2004. "Market Institutions in Sub-Saharan Africa: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262062364, June.
  18. Jihad Dagher & Jan Gottschalk & Rafael Portillo, 2010. "Oil Windfalls in Ghana; A DSGE Approach," IMF Working Papers 10/116, International Monetary Fund.
  19. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  20. Stiglitz, Joseph & Ocampo, Jose Antonio & Spiegel, Shari & Ffrench-Davis, Ricardo & Nayyar, Deepak, 2006. "Stability with Growth: Macroeconomics, Liberalization and Development," OUP Catalogue, Oxford University Press, number 9780199288144, March.
  21. Holmberg, Karolina, 2006. "Derivation and Estimation of a New Keynesian Phillips Curve in a Small Open Economy," Working Paper Series 197, Sveriges Riksbank (Central Bank of Sweden).
  22. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 4.
  23. Christopher Adam & Stephen O'Connell & Edward Buffie, 2008. "Aid volatility, monetary policy rules and the capital account in African economies," WEF Working Papers 0037, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:29996. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.