Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/37031
Authors: 
Brei, Michael
Buzaushina, Almira
Year of Publication: 
2009
Series/Report no.: 
Bonn econ discussion papers 2009,2
Abstract: 
In the present paper, we develop a two-sector general equilibrium model of a small open economy to explore the transmission mechanisms of external financial shocks. In particular, we use a cash-in-advance model with limited participation augmented with a financial friction in the form of a fundamentals-related risk premium on external funds. The friction amplifies the effects of external financial shocks, especially when the economy is highly indebted in foreign currency. For a set of Latin American economies, the theoretical model is calibrated to match the empirical impulse responses of output, investment, trade balance, and domestic credits in response to an adverse shock to the country risk premium. In addition, we analyze the role of monetary policy during the financial crisis.
Subjects: 
Emerging Markets
Financial Crises
International Capital Markets
JEL: 
F34
F36
G21
Document Type: 
Working Paper

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