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

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, t...

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Bibliographic Details
Main Author: Karam, Philippe
Other Authors: Pagan, A. R.
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2008
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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245 0 0 |a A Small Structural Monetary Policy Model for Small Open Economies with Debt Accumulation  |c Philippe Karam, A. R. Pagan 
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300 |a 22 pages 
651 4 |a Canada 
653 |a Economic policy 
653 |a Terms of trade 
653 |a Currency 
653 |a Trade: General 
653 |a Exports and Imports 
653 |a International Lending and Debt Problems 
653 |a International economics 
653 |a External debt 
653 |a Debts, External 
653 |a Foreign Exchange 
653 |a Exports 
653 |a Real exchange rates 
653 |a Empirical Studies of Trade 
653 |a Imports 
653 |a Foreign exchange 
653 |a Nternational cooperation 
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520 |a 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