Credit crunch in a small open economy

Michal Brzoza-Brzezina and Krzysztof Makarski

Journal of International Money and Finance, 2011, vol. 30, issue 7, 1406-1428

Abstract: We construct an open-economy DSGE model with a banking sector to analyze the impact of the recent credit crunch on a small open economy. In our model the banking sector operates under monopolistic competition, collects deposits and grants collateralized loans. Collateral effects amplify monetary policy actions, interest rate stickiness dampens the transmission of interest rates, and financial shocks generate non-negligible real and nominal effects. As an application we estimate the model for Poland–a typical small open economy. According to the results, financial shocks had a substantial, though not overwhelming, impact on the Polish economy during the 2008/09 crisis, lowering GDP by approximately 1.5 percent.

Keywords: Credit crunch; Monetary policy; DSGE with banking sector (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (39)

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Related works:
Working Paper: Credit Crunch in a Small Open Economy (2010)
Working Paper: Credit Crunch in a Small Open Economy (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:30:y:2011:i:7:p:1406-1428

DOI: 10.1016/j.jimonfin.2011.07.010

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