A Small Structural Monetary Policy Model for Small Open Economies with Debt Accumulation

March 1, 2008

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Format: Chicago

Philippe D Karam, and A. R. Pagan A Small Structural Monetary Policy Model for Small Open Economies with Debt Accumulation, (USA: International Monetary Fund, 2008) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We extend a small New Keynesian structural model used for monetary policy analysis to address a richer class of policy issues that arise in open economy analysis. We draw a distinction between absorption and domestic output, and as the difference between the two is effectively the current account, there is now an explicit accumulation or decumulation of foreign liabilities in response to various shocks affecting the system. Such stock equilibria can now have an impact back on to the flows in the domestic economy. We perform simulations using parameters calibrated to the Canadian economy and compare the differences in impulse responses from the original model. Advantages in a forecasting environment owing to the ability to impose explicit projections about imports and exports are also exposed.

Subject: Exports, External debt, Imports, Real exchange rates, Terms of trade

Keywords: WP

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/064
Stock No:

WPIEA2008064
ISBN:

9781451869262
ISSN:

1018-5941

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