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Bayesian Estimation of a Simple Macroeconomic Model for a Small Open and Partially Dollarized Economy

Author

Listed:
  • Salas, Jorge

    () (Central Bank of Peru)

Abstract

I describe a simple new-keynesian macroeconomic model for a small open and partially dollarized economy, which closely resembles the Quarterly Projection Model (QPM) developed at the Central Bank of Peru (Vega et al. (2009)). Then I use Bayesian techniques and quarterly data from Peru to estimate a large group of parameters. The empirical findings provide support for some of the parameters values imposed in the original QPM. In contrast, I find that another group of coefficients – e.g., the weights on the forward-looking components in the aggregate demand and the Phillips curve equations, among several others – should be modified to be more consistent with the data. Furthermore, the results validate the operation of different channels of monetary policy transmission, such as the traditional interest rate channel and the exchange rate channel. I also find evidence that in the most recent part of the sample (2004 onwards), the expectations channel has become more prominent, as implied by the estimated values of the forward-looking parameters in the aggregate demand and the Phillips curve equations.

Suggested Citation

  • Salas, Jorge, 2010. "Bayesian Estimation of a Simple Macroeconomic Model for a Small Open and Partially Dollarized Economy," Working Papers 2010-007, Banco Central de Reserva del Perú.
  • Handle: RePEc:rbp:wpaper:2010-007
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    File URL: http://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2010/Documento-de-Trabajo-07-2010.pdf
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    References listed on IDEAS

    as
    1. De Paoli, Bianca, 2009. "Monetary policy and welfare in a small open economy," Journal of International Economics, Elsevier, pages 11-22.
    2. International Monetary Fund, 2009. "Adding Latin America to the Global Projection Model," IMF Working Papers 09/85, International Monetary Fund.
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    Citations

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    Cited by:

    1. Rodolfo Cermeño & Julio Mamani-Palacios, 2013. "Regímenes Monetarios y Volatilidad del Tipo de Cambio Real: El Caso Peruano, 1995–2012," Working papers DTE 565, CIDE, División de Economía.
    2. Fei Han, 2014. "Measuring External Risks for Peru; Insights from a Macroeconomic Model for a Small Open and Partially Dollarized Economy," IMF Working Papers 14/161, International Monetary Fund.
    3. International Monetary Fund, 2014. "Peru; Selected Issues Paper," IMF Staff Country Reports 14/22, International Monetary Fund.

    More about this item

    Keywords

    Monetary Policy; Partial Dollarization; Bayesian Estimation;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • 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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