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

Camilo Tovar ()

No 215, BIS Working Papers from Bank for International Settlements

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.

Keywords: structural estimation; DSGE; financial accelerator; devaluations; balance sheet effect; interest rate rule; exchange rate target; new open economy macroeconomics (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2006-09
New Economics Papers: this item is included in nep-cba, nep-mon and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:215

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