An Estimated Small Open Economy Model of the Financial Accelerator

By Selim Elekdag, Alejandro Justiniano, Ivan Tchakarov. Social Science Research Network, 2005

124 citations recorded by the source corpus.

This paper develops a small open economy model in which entrepreneurs partially finance investment using foreign currency-denominated debt subject to an external finance premium. We use Bayesian estimation techniques to evaluate the importance of balance sheet-related credit market frictions for emerging market countries by incorporating the financial accelerator mechanism. We obtain a sizable value for the external finance premium, which is tightly estimated away from zero. Our results support the inclusion of the financial accelerator in an otherwise standard model that-acting through balance sheets-magnifies the impact of shocks, thereby increasing real and financial volatility. Copyright 2006, International Monetary Fund

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/1c0e190e6eb351553e4a4db08ff517f710023267

How researchers see this paper

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In Economics and Econometrics

1. I. Christensen
2. A. Dib
3. Stefan Mittnik
4. Willi Semmler
5. Christoph Thoenissen
6. Charles Nolan

In Finance

1. I. Christensen
2. A. Dib

Citations in the corpus

• The financial accelerator in an estimated New Keynesian model (2008, background): “Cespedes et al. (2004), Gertler et al. (2003), Tovar (2006), and Elekdag et al. (2006) consider the case of open economies in emerging markets.”