Publication
Title
A small open economy new Keynesian DSGE model for a foreign exchange constrained economy
Author
Abstract
Firms in many low income countries depend entirely on imported capital and intermediate inputs. As a result, in these countries economic activity is considerably in‡uenced by the capacity of the economy to import these inputs which, in turn, depends on the availability and cost of foreign exchange. In this study we introduce foreign exchange availability as an additional constraint faced by …rms into an otherwise standard small open economy New Keynesian DSGE model. The model is then calibrated for a typical Sub Saharan African economy and the behaviour of the model in response to both domestic and external shocks is compared with the standard model. The impulse response functions of the two models are the same qualitatively for most of the variables though the model with foreign exchange constraint generates more variability in most of the variables than the standard model. This behaviour of the model with foreign exchange constraint is consistent with the stylized facts of low income countries. Furthermore, for variables for which the two models have di¤erent impulse response functions, the model with foreing exchange constraint is both theoretically consistent and matches the stylized facts.
Language
English
Source (series)
Research paper / UA, Faculty of Applied Economics ; 2011:004
Publication
Antwerp : UA, 2011
Volume/pages
46 p.
Full text (open access)
UAntwerpen
Faculty/Department
Research group
Publication type
Subject
Affiliation
Publications with a UAntwerp address
External links
Record
Identification
Creation 25.06.2011
Last edited 02.04.2016
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