Exchange rate intervention in small open economies: The role of risk premium and commodity price shocks

Carlos García and Wildo Gonzalez P. ()

International Review of Economics & Finance, 2013, vol. 25, issue C, 424-447

Abstract: We study the effect of country risk premium and commodity price shocks on monetary policy in small open economies. Risk premium shocks not only can explain most of the variance in the exchange rate, but also can expand GDP. Our estimations indicate that the impact of a real depreciation on exports far exceeds not only the balance sheet effect, but also the effect of an increase in the cost of imported inputs. However, in a more complex environment, where the changes in exports are offset by negative shocks to commodity prices, the contraction stemming from the balance sheet effect reappears.

Keywords: Monetary policy rules; Exchange rates; Bayesian econometrics; Risk premium shocks; Ramsey problem (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056012000883
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:25:y:2013:i:c:p:424-447

DOI: 10.1016/j.iref.2012.08.012

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().