SONOMA: A Small Open ecoNOmy for MAcrofinance
61 Pages Posted: 29 Nov 2018 Last revised: 15 Jun 2020
Date Written: November 18, 2018
We develop a small open production economy model in which external debt, corporate domestic debt, and risky equities coexist. Our economy features shocks to short- and long-run productivity, as well as shocks to both domestic credit conditions and global credit markets. We show that credit shocks are an important determinant of economic fluctuations in a model consistent with asset pricing facts. According to a novel empirical investigation from many small-but-developed countries, our setting features a powerful quantitative performance well-suited for future monetary and fiscal policy analysis.
Keywords: Small Open Economy, Credit Shocks, Asset Pricing
JEL Classification: F3, F4, G15
Suggested Citation: Suggested Citation