An Estimated Model with Macrofinancial Linkages for India

ByMagnus Saxegaard, Rahul Anand, Shanaka J Peiris

January 1, 2010

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 develops a small open economy dynamic stochastic general-equilibrium model with macrofinancial linkages. The model includes a financial accelerator--entrepreneurs are assumed to partially finance investment using domestic and foreign currency debt--to assess the importance of financial frictions in the amplification and propagation of the effects of transitory shocks. We use Bayesian estimation techniques to estimate the model using India data. The model is used to assess the importance of the financial accelerator in India and the optimality of monetary policy.

Subject: Consumption, Depreciation, Exchange rates, Foreign exchange, Inflation, Labor, National accounts, Prices, Self-employment

Keywords: acquisition cost, adjustment cost parameter, bayesian estimation, capital producer, consumer welfare, Consumption, cost adjustment cost parameter, Depreciation, Exchange rates, financial accelerator, Global, Inflation, inflation volatility, inflation-if monetary policy, macro-financial linkages, monetary policy, monetary policy shock, open economy, optimal policy, rate of depreciation, reaction function, Self-employment, WP, WPI inflation

Pages:
45
Volume:
2010
DOI:
https://doi.org/10.5089/9781451962321.001
Issue:
021
Series:
Working Paper No. 2010/021
Stock No:
WPIEA2010021
ISBN:
9781451962321
ISSN:
1018-5941

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