SONOMA: A Small Open ecoNOmy for MAcrofinance
49 Pages Posted: 29 Nov 2018 Last revised: 16 Jan 2019
Date Written: November 18, 2018
We develop a small 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 (Jermann and Quadrini, 2012) 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 data from EU countries, our setting features a powerful quantitative performance ideal for future monetary and fiscal policy analysis.
Keywords: Small Open Economy, Credit Shocks, Asset Pricing
JEL Classification: F3, F4, G15
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