Munich Personal RePEc Archive

An estimated financial accelerator model for small-open African economies

Rasaki, Mutiu Gbade and Malikane, Christopher (2017): An estimated financial accelerator model for small-open African economies.

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Abstract

The paper formulates and estimates an open economy monetary DSGE model to investigate the quantitative significance of the financial accelerator mechanism in business cycle fluctuations for African countries. We employ the Bayesian technique to evaluate the statistical importance of the financial accelerator channel in African countries. We compare the model with financial accelerator model to the model without financial accelerator. The estimation shows that financial accelerator channels are empirically important in African economies. The marginal likelihood results clearly favour the model with financial accelerator in African economies. Moreover, the results show that the financial accelerator channel dampens the expansionary effects of exchange rate depreciation in African economies. African countries should deepen their domestic debt markets to minimize their vulnerability to exchange rate shocks.

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