An Estimated Model with Macrofinancial Linkages for India

Magnus Saxegaard, Rahul Anand and Shanaka Peiris

No 2010/021, IMF Working Papers from International Monetary Fund

Abstract: This paper develops a small open economy dynamic stochastic general-equilibrium model with macrofinancial linkages. The model includes a financial accelerator--entrepreneurs are assumed to partially finance investment using domestic and foreign currency debt--to assess the importance of financial frictions in the amplification and propagation of the effects of transitory shocks. We use Bayesian estimation techniques to estimate the model using India data. The model is used to assess the importance of the financial accelerator in India and the optimality of monetary policy.

Keywords: WP; monetary policy; rate of depreciation; financial accelerator; macro-financial linkages; optimal policy; bayesian estimation; adjustment cost parameter; inflation volatility; WPI inflation; reaction function; open economy; inflation-if monetary policy; monetary policy shock; capital producer; acquisition cost; cost adjustment cost parameter; consumer welfare; Self-employment; Inflation; Exchange rates; Consumption; Depreciation; Global (search for similar items in EconPapers)
Pages: 45
Date: 2010-01-01
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Citations: View citations in EconPapers (35)

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