Portfolio shocks and the financial accelerator in a small open economy

Marco Ortiz and Ken Miyahara ()

MPRA Paper from University Library of Munich, Germany

Abstract: We study a small open economy with two salient properties: an entrepreneurial sector that borrows in foreign currency and is subject to costly state-verification and risk averse FX market intermediaries. This economy thus features a financial accelerator, an endogenous expected cost of capital, and foreign exchange dynamics dependent on the open position of financial intermediaries. we aim to quantitatively assess the extent to which portfolio shocks can reproduce contractionary depreciations and how central bank's optimal simple rules can improve welfare in a stylized economy.

Keywords: Exchange rate dynamics; exchange rate intervention; financial accelerator; incomplete financial markets (search for similar items in EconPapers)
JEL-codes: F3 F31 F34 F41 G15 (search for similar items in EconPapers)
Date: 2022-08-15
New Economics Papers: this item is included in nep-cba, nep-dge, nep-fdg and nep-opm
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