Farms, Fertiliser, and Financial Frictions : Yields from a DSGE Model

Author/Editor:

Sébastien Walker

Publication Date:

May 5, 2017

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

This paper develops a Dynamic Stochastic General Equilibrium (DSGE) model with a financial accelerator which captures key features of low-income countries (LICs). The predominance of supply shocks in LICs poses distinct challenges for policymakers, given the negative correlation between inflation and the output gap in the case of supply shocks. Our results suggest that: (1) in the face of a supply-side shock, the most desirable interest rate rule involves simply targeting current inflation and smoothing the policy interest rate; and (2) ignoring financial frictions when evaluating policy rules can be particularly problematic in LICs, where financial frictions loom especially large.

Series:

Working Paper No. 17/112

Subject:

English

Publication Date:

May 5, 2017

ISBN/ISSN:

9781475595772/1018-5941

Stock No:

WPIEA2017112

Format:

Paper

Pages:

52

Please address any questions about this title to publications@imf.org