Brzoza-Brzezina, Michal and Makarski, Krzysztof (2009): Credit Crunch in a Small Open Economy.
Download (460Kb) | Preview
We construct an open-economy DSGE model with a banking sector to analyse the impact of the recent credit crunch on a small open economy. In our model the banking sector operates under monopolistic competition, collects deposits and grants collateralized loans. Collateral effects amplify monetary policy actions, interest rate stickiness dampens the transmission of interest rates, and financial shocks generate non-negligible real and nominal effects. As an application we estimate the model for Poland - a typical small open economy. According to the results, financial shocks had a substantial, though not overwhelming, impact on the Polish economy during the 2008/09 crisis, lowering GDP by a little over one percent.
|Item Type:||MPRA Paper|
|Original Title:||Credit Crunch in a Small Open Economy|
|Keywords:||credit crunch, monetary policy, DSGE with banking sector|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
|Depositing User:||Michal Brzoza-Brzezina|
|Date Deposited:||13. Nov 2009 17:31|
|Last Modified:||17. Dec 2013 09:46|
Adolfson, M., S. Laséen, J. Lindé, and M. Villani (2005): Bayesian estimation of an open economy DSGE model with incomplete pass-through, Working Paper Series 179, Sveriges Riksbank (Central Bank of Sweden).
Altig, D., L. Christiano, M. Eichenbaum, and J. Lindé (2005): Firm-specic capital, nominal rigidities and the business cycle, NBER Working Papers 11034, National Bureau of Economic Research.
Bernanke, B., and M. Gertler (1989): Agency Costs, Net Worth, and Business Fluctuations, American Economic Review, 79(1), 14-31.
Bernanke, B., M. Gertler, and S. Gilchrist (1996): The Financial Accelerator and the Flight to Quality, The Review of Economics and Statistics, 78(1), 115.
BIS (2009): BIS Annual Report 2008/09, Report, Bank for International Settlements.
Brooks, S., and A. Gelman (1998): Some issues in monitoring convergence of iterative simulations, in Proceedings of the Section on Statistical Computing. American Statistical Association.
Carlstrom, C. T., and T. S. Fuerst (2005): Investment and interest rate policy: a discrete time analysis, Journal of Economic Theory, 123(1), pp. 420-22.
Choi, W. G., and D. Cook (2004): Liability dollarization and the bank balance sheet channel, Journal of International Economics, 64(2), 247-275.
Christiano, L., R. Motto, and M. Rostagno (2007): Financial Factors in Business Cycle, Discussion paper.
Christiano, L. J., M. Eichenbaum, and C. L. Evans (2005): Nominal rigidities and the dynamic eects of a shock to monetary policy, Journal of Political Economy, 113(1), pp. 1-45.
Cúrdia, V., and M. Woodford (2008): Credit frictions and optimal monetary policy, National Bank of Belgium Working Paper 146, National Bank of Belgium.
Erceg, C. J., D. W. Henderson, and A. T. Levin (2000): Optimal monetary policy with staggered wage and price contracts, Journal of Monetary Economics, 46(2), pp. 281-313.
Galí, J., and T. Monacelli (2005): Monetary Policy and Exchange Rate Volatility in a Small Open Economy, Review of Economic Studies, 72(3), 707-734.
Gerali, A., S. Neri, L. Sessa, and F. M. Signoretti (2009): Credit and Banking in a DSGE Model of the Euro Area, mimeo, Banca d'Italia.
Goodfriend, M., and B. T. McCallum (2007): Banking and interest rates in monetary policy analysis: A quantitative exploration, Journal of Monetary Economics, 54(5), 1480 - 1507.
Grabek, G., B. Kłos, and G. Utzig-Lenarczyk (2007): SOE-PL - model DSGE malej otwartej gospodarki estymowany na danych polskich, Materiały i Studia NBP 217, National Bank of Poland.
Gradzewicz, M., and K. Makarski (2008): The Macroeconomic Eects of Losing Autonomous Monetary Policy after the Euro Adoption in Poland, NBP Working Papers 58, National Bank of Poland.
Iacoviello, M. (2005): House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle, American Economic Review, 95(3), 739-764.
Kolasa, M. (2008): Structural heterogenity of assymetric Shocks? Poland and the Euro Area through the lens of a two-country DSGE model, NBP Working Papers 49, National Bank of Poland.
NBP (2009a): Ination Report, June 2009, Report, National Bank of Poland.
NBP (2009b): Senior loan ocer opinion survey on bank lending practices and credit conditions, 1st quarter 2009, Report, National Bank of Poland.
Ruhl, K. (2005): Solving the elasticity puzzle in international economics, mimeo, University of Texas.
Schmitt-Grohe, S., and M. Uribe (2003): Closing small open economy models, Journal of International Economics, 61(1), pp. 163-185.
Smets, F., and R.Wouters (2003): An estimated dynamic stochastic general equilibrium model of the euro area, Journal of the European Economic Association, 1(5), pp. 1123-1175.
Taylor, J. B. (1993): Discretion versus policy rules in practice, Carnegie-Rochester Conference Series on Public Policy, 39, pp. 195-214.