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

Author/Editor:

Philippe D Karam ; A. R. Pagan

Publication Date:

March 1, 2008

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 2008/064

Subject:

Exports External debt Imports Real exchange rates Terms of trade

English

Publication Date:

March 1, 2008

ISBN/ISSN:

9781451869262/1018-5941

Stock No:

WPIEA2008064

Pages:

22

Please address any questions about this title to publications@imf.org