Monetary and Fiscal Policy Options for Dealing with External Shocks - Insights from the GIMF for Colombia
March 1, 2009
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Summary
This paper utilizes an open-economy New Keynesian overlapping generations model, the Global Integrated Monetary and Fiscal Model (GIMF), to assess the macroeconomic effects of external shocks and the impact of various monetary and fiscal policy responses. The simulations assess the effect of shocks to trade, world income, and risk premia for public debt. The results suggest that under Colombia’s inflation targeting regime, which incorporates exchange rate flexibility and a highly responsive monetary policy, the economy is well poised to adjust to different external shocks. They also suggest that the potential role of fiscal policy in responding to shocks depends critically on financing conditions.
Subject: Automatic stabilizers, Fiscal policy, Fiscal stance, Return on investment, Revenue administration
Keywords: financing condition, fiscal policy response, monetary policy, WP
Pages:
17
Volume:
2009
DOI:
Issue:
059
Series:
Working Paper No. 2009/059
Stock No:
WPIEA2009059
ISBN:
9781451872064
ISSN:
1018-5941
