publication . Preprint . 2014

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

Fei Han;
Open Access
  • Published: 02 Sep 2014
Abstract
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 d...
Subjects
free text keywords: Instrumental Variables (IV) Estimation, Forecasting and Simulation, Monetary Policy (Targets, Instruments, and Effects), Open Economy Macroeconomics, Globalization: Macroeconomic Impacts, [Central banks and their policies;Monetary policy;Spillovers;Peru;Macroeconomic Model, Partial Dollarization, External Risk, Macroeconomic Forecast, inflation, aggregate demand, monetary fund, Multiple or Simultaneous Equation Models]
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