Measuring External Risks for Peru: Insights from a Macroeconomic Model for a Small Open and Partially Dollarized Economy

 
Author/Editor: Fei Han
 
Publication Date: September 02, 2014
 
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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 quantifies the effects of external risks for Peru, with particular attention to two major external risks, China’s investment slowdown and the U.S. monetary policy tightening. In particular, a macroeconomic model for a small open and partially dollarized economy is developed and estimated for Peru to measure the risk spillovers, and simulate domestic macroeconomic responses in different scenarios with these two external risks. The simulation results suggest that Peru’s output is vulnerable to both risks, particularly the U.S. monetary policy tightening. Simulations also highlight the importance of higher exchange rate flexiblity and a lower degree of dollarization, which could help mitigate the negative spillover effects of these external risks.
 
Series: Working Paper No. 14/161
Subject(s): External shocks | Peru | Foreign investment | China | United States | Monetary policy | Dollarization | Small open economies | Economic models

 
English
Publication Date: September 02, 2014
ISBN/ISSN: 9781498327220/1018-5941 Format: Paper
Stock No: WPIEA2014161 Pages: 24
Price:
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