An Estimated Stochastic General Equilibrium Model with Partial Dollarization: A Bayesian Approach
Paul Castillo (),
Carlos Montoro () and
Vicente Tuesta ()
Open Economies Review, 2013, vol. 24, issue 2, 217-265
In this paper, we develop and estimate a dynamic stochastic, general-equilibrium New Keynesian model with partial dollarization. Bayesian techniques and Peruvian data are used to evaluate two forms of dollarization: currency substitution (CS) and price dollarization (PD). The empirical results are as follow: first, it is noted that the two forms of partial dollarization are important in explaining the significance of the Peruvian data. Second, models with both forms of dollarization dominate models without dollarization. Third, a counterfactual exercise shows that by eliminating both forms of partial dollarization, the response of both output and consumption to a monetary policy shock doubles, making the interest rate channel of monetary policy more effective. Fourth, based on the variance decomposition of the preferred model (with CS and PD), it is found that demand type shocks explain almost all the fluctuation in CPI inflation, the monetary shock being the most important (39%). Remarkably, foreign disturbances account for 34% of the output fluctuations. Copyright Springer Science+Business Media, LLC 2013
Keywords: Bayesian estimation; DSGE; Partial dollarization; F31; F32; F41; C11 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
Working Paper: An Estimated Stochastic General Equilibrium Model with Partial Dollarization: A Bayesian Approach (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:openec:v:24:y:2013:i:2:p:217-265
Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/11079/PS2
Access Statistics for this article
Open Economies Review is currently edited by G.S. Tavlas
More articles in Open Economies Review from Springer
Bibliographic data for series maintained by Sonal Shukla ().