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A Dynamic Stochastic General Equilibrium Model with Dollarization for the Peruvian Economy

Author

Listed:
  • Castillo, Paul

    (Banco Central de Reserva del Perú)

  • Montoro, Carlos

    (Banco Central de Reserva del Perú)

  • Tuesta, Vicente

    (Banco Central de Reserva del Perú)

Abstract

This paper develops a dynamic stochastic general equilibrium model, which is calibrated for the Peruvian economy and can be useful for the design and analysis of monetary policy. The model includes a second currency that replaces partially the domestic currency in its functions of unit of account, medium of payment and reserve of value; phenomenon known in the economic literature as partial dollarization. We also include certain real, nominal and financial rigidities to replicate the empirical regularities of the Peruvian macroeconomic data. The model reproduces relatively well the main stylized facts of the Peruvian economy. Moreover, we show how dollarization reduces the power of monetary policy to affect output and increase the vulnerability of the economic activity to foreign shocks. Furthermore, we perform some exercises that show the importance of credibility in the actions of the monetary authority to anchor expectations and to reduce deviation in the inflation rate.

Suggested Citation

  • Castillo, Paul & Montoro, Carlos & Tuesta, Vicente, 2009. "A Dynamic Stochastic General Equilibrium Model with Dollarization for the Peruvian Economy," Working Papers 2009-003, Banco Central de Reserva del Perú.
    • Handle: RePEc:rbp:wpaper:2009-003
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    File URL: https://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2009/Documento-de-Trabajo-03-2009.pdf
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    Citations

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    Cited by:

    1. Montoro, Carlos & Ortiz, Marco, 2016. "Foreign exchange intervention and monetary policy design: a market microstructure analysis," Working Papers 2016-008, Banco Central de Reserva del Perú.
    2. Fabio DI DIO & Barbara ANNICCHIARICO & Francesco FELICI & Francesco NUCCI, 2010. "Macroeconomic Modelling and Policy Implications: an Assessment for Italy using ITEM and QUEST," EcoMod2010 259600045, EcoMod.
    3. Carlos Montoro & Marco Ortiz, 2020. "The Portfolio Channel of Capital Flows and Foreign Exchange Intervention in A Small Open Economy," Working Papers 168, Peruvian Economic Association.
    4. Alex Carrasco & David Florian Hoyle & Rafael Nivin, 2019. "SFX Interventions, Financial Intermediation, and External Shocks in Emerging Economies," Working Papers 160, Peruvian Economic Association.
    5. Barbara Annicchiarico & Fabio Di Dio & Francesco Felici & Francesco Nucci, "undated". "Macroeconomic Modelling and the Effects of Policy Reforms: an Assessment for Italy using ITEM and," Working Papers 1, Department of the Treasury, Ministry of the Economy and of Finance.
    6. German Cubas, 2012. "The Rate of Reserve Requirements and Monetary Policy in Uruguay: a DSGE Approach," Documentos de trabajo 2012011, Banco Central del Uruguay.
    7. German Cubas, 2011. "A Dynamic Stochastic General Equilibrium Model for Policy Analysis in Uruguay," Documentos de trabajo 2011013, Banco Central del Uruguay.

    More about this item

    Keywords

    Modelos de Equilibrio General; Dolarización Parcial; Perú;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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