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Evidence for a financial accelerator in a small open economy, and implications for monetary policy

Martha López (), Juan Prada Sarmiento () and Norberto Rodríguez N. ()

Revista ESPE - Ensayos Sobre Política Económica, 2009, vol. 27, issue 60, 12-45

Abstract: Using Bayesian estimation techniques, we estimatea small open economy dynamic stochastic generalequilibrium model with credit-market imperfectionsfor the Colombian economy. We show thatthe combination of balance sheet effects and thechoice of monetary policy regime are likely to playan important role in the magnification and propagationof initial shocks to the Colombian economy.As an application we show that our model explainsthe 1998-1999 crisis in Colombia, when a sharp risein spreads on a relatively small proportion of internationaldebt were passed strongly onto domesticlending rates, provoking a severe recession.

Keywords: DSGE modeling; financial accelerator; bayesian estimation; exchange rate regime. (search for similar items in EconPapers)
JEL-codes: C11 C15 E32 E44 E52 (search for similar items in EconPapers)
Date: 2009
References: View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

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https://doi.org/10.32468/Espe.6001

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