IMF Working Papers

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

By Sébastien Walker

May 5, 2017

Download PDF

Preview Citation

Format: Chicago

Sébastien Walker. Farms, Fertiliser, and Financial Frictions: Yields from a DSGE Model, (USA: International Monetary Fund, 2017) accessed December 14, 2024

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.

Subject: Consumption, Economic theory, Exchange rates, Financial frictions, Foreign exchange, Inflation, Labor, Output gap, Prices, Production

Keywords: Africa, Auditing cost, Calvo price-stickiness parameter, DSGE models, Exchange rates, Expected return, Factor price, Fertiliser cost, Financial frictions, Foreign capital flows, Inflation, Monetary policy, Nominal interest rate, Output gap, Price inflation, Price of fertiliser, Production function, Rate of return, Sub-Saharan Africa, Supply shocks, World cost, World fertiliser price shock, WP

Publication Details

  • Pages:

    52

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2017/112

  • Stock No:

    WPIEA2017112

  • ISBN:

    9781475595772

  • ISSN:

    1018-5941