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Land Collateral and Rule-of-Thumb Households in a Franc Zone Country: A Bayesian Appraisal

NANA DAVIES, Charles (2020): Land Collateral and Rule-of-Thumb Households in a Franc Zone Country: A Bayesian Appraisal.

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Abstract

We model the supply side of the banking sector, two types of households, and a land asset collateral in a small open economy model that accounts for some of the most enduring features and provisions of the Franc Zone. The model is estimated using the Metropolis-Hasting algorithm and Cameroon's annual data from 1979 to 2016. Four findings stand out. First, sensible posteriors of some deep parameters are obtained when the proportion of rule-of-thumb households is set to forty-eight percent. Second, permanent technology, bank profit, consumption, and foreign inflation shocks are the main drivers of macroeconomic fluctuations. Third, among those shocks, only a bank profit shock, which is associated with a sharp drop of wholesale interest rates, leads to an output expansion. Fourth, fiscal policy matters but through its effects on banks' balance sheet.

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