Monetary and Fiscal Policy Options for Dealing with External Shocks

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

By Enrique Flores, Daniel Leigh, Benedict J. Clements

March 1, 2009

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Enrique Flores, Daniel Leigh, and Benedict J. Clements Monetary and Fiscal Policy Options for Dealing with External Shocks - Insights from the GIMF for Colombia, (USA: International Monetary Fund, 2009) accessed November 21, 2024

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

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.

Subject: Automatic stabilizers, Fiscal policy, Fiscal stance, Return on investment, Revenue administration

Keywords: Financing condition, Fiscal policy response, Monetary policy, WP

Publication Details

Pages:

17
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/059
Stock No:

WPIEA2009059
ISBN:

9781451872064
ISSN:

1018-5941

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