Exchange-Rate Policy in a Dollarized Economy: Implications for Growth and Employment in Bolivia

Martin Cicowiez Author-Name: Carlos Gustavo Machicado Author-Name: Beatriz Muriel Author-Name: Alejandro Herrera Jiménez Author-Name: Alejandra Goytia
Authors registered in the RePEc Author Service: Carlos Gustavo Machicado Salas, Alejandro Herrera, Martín Cicowiez and Beatriz Muriel Hernández

Working Papers MPIA from PEP-MPIA

Abstract: We analyzed the impact of currency devaluation on the Bolivian economy, employing a dynamic and extended version of the PEP 1-1 standard model to simulate effects impact on both the main macroeconomic aggregates and the financial stocks and flows of economic agents. We built a new Financial Social Accounting Matrix for the year 2014 and calibrated the model to it. Besides simulating a devaluation of the nominal exchange rate, we also analyzed a policy-response scenario, an external-shock scenario, and a gradual-devaluation scenario. In the policy-response scenario, devaluation was accompanied by a reduction in government expenses (fiscal adjustment); in the external-shock scenario, devaluation came with an increase in the export price of gas (main export commodity); and, in the gradual-devaluation scenario, the exchange-rate policy relaxed gradually. The external-shock scenario dominated the other scenarios in terms of higher average growth and less average unemployment. The fiscal-adjustment scenario, however, dominated in terms of inflation, though it implied an inflationary shock in 2020.

Keywords: Foreign exchange policy; macroeconomic policy; CGE modelling; Bolivia (search for similar items in EconPapers)
JEL-codes: C68 E61 O24 O54 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-cmp and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:mpiacr:2020-08

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