Monetary and Fiscal Policy Options for Dealing with External Shocks: Insights from the GIMF for Colombia

19 Pages Posted: 23 Mar 2009

See all articles by Benedict Clements

Benedict Clements

International Monetary Fund (IMF) - African Department

Enrique Flores

International Monetary Fund (IMF)

Daniel Leigh

International Monetary Fund (IMF)

Date Written: March 2009

Abstract

This paper utilizes an open-economy New Keynesian overlapping generations model, the Global Integrated Monetary and Fiscal Model (GIMF), to assess the macroeconomic effects of external shocks and the impact of various monetary and fiscal policy responses. The simulations assess the effect of shocks to trade, world income, and risk premia for public debt. The results suggest that under Colombia's inflation targeting regime, which incorporates exchange rate flexibility and a highly responsive monetary policy, the economy is well poised to adjust to different external shocks. They also suggest that the potential role of fiscal policy in responding to shocks depends critically on financing conditions.

Keywords: External Shocks, Monetary Policy, Fiscal Policy

JEL Classification: E30, E62, E63

Suggested Citation

Clements, Benedict and Flores, Enrique and Leigh, Daniel, Monetary and Fiscal Policy Options for Dealing with External Shocks: Insights from the GIMF for Colombia (March 2009). IMF Working Papers, Vol. , pp. 1-17, 2009. Available at SSRN: https://ssrn.com/abstract=1366187

Benedict Clements

International Monetary Fund (IMF) - African Department ( email )

1700 19th Street, NW
Washington, DC 20431
United States

Enrique Flores

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Daniel Leigh

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
52
Abstract Views
533
rank
384,863
PlumX Metrics