Devaluations, Output and the Balance Sheet Effect: A Structural Econometric Analysis
44 Pages Posted: 20 Sep 2007
Date Written: September 2006
Abstract
This paper estimates a new open economy macroeconomic model for South Korea to determine the output effect of currency devaluations. Three transmission mechanisms are considered: the expenditure-switching, the balance sheet, and a monetary channel associated to a nominal exchange rate target. Devaluations are defined as an increase in this target. This allows to isolate the effects of an explicit exogenous devaluationary policy shock. Ceteris paribus, a devaluation is found to be expansionary. Output contractions in South Korea should then be associated with a different shock such as an adverse shock on the international interest rate or on export demand.
Keywords: Devaluations, balance sheet effect, financial accelerator, interest rate rule, exchange rate target, new open economy macroeconomics, structural estimation, DSGE
JEL Classification: F31, F41
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
External Constraints on Monetary Policy and the Financial Accelerator
By Mark Gertler, Simon Gilchrist, ...
-
External Constraints on Monetary Policy and the Financial Accelerator
By Mark Gertler, Simon Gilchrist, ...
-
External Constraints on Monetary Policy and the Financial Accelerator
By Mark Gertler, Simon Gilchrist, ...
-
Exchange Rates and Monetary Policy in Emerging Market Economies
-
Exchange Rates and Monetary Policy in Emerging Market Economies
-
Liability Dollarization and the Bank Balance Sheet Channel
By Woon Gyu Choi and David E. Cook
-
External Currency Pricing and the East Asian Crisis
By David E. Cook and Michael B. Devereux
-
Financial Intermediation and the Great Depression: A Multiple Equilibrium Interpretation
By Russell Cooper and João Ejarque
-
Balance Sheets, Exchange Rate Policy, and Welfare
By Selim Ali Elekdag and Ivan Tchakarov