Monetary and Fiscal Policy Options for Dealing with External Shocks: Insights from the GIMF for Colombia

Author/Editor: Clements, Benedict J. ; Flores, Enrique ; Leigh, Daniel
Publication Date: March 01, 2009
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
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.
Series: Working Paper No. 09/59
Subject(s): Monetary policy | Fiscal policy | External shocks | Colombia | Inflation targeting | Flexible exchange rates | Economic models

Author's Keyword(s): External shocks | monetary policy | fiscal policy
Publication Date: March 01, 2009
Format: Paper
Stock No: WPIEA2009059 Pages: 17
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