An Estimated Model with Macrofinancial Linkages for India

45 Pages Posted: 1 Feb 2010

See all articles by Shanaka J. Peiris

Shanaka J. Peiris

International Monetary Fund (IMF)

Magnus Saxegaard

International Monetary Fund (IMF)

Rahul Anand

International Monetary Fund (IMF)

Date Written: January 2010

Abstract

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.

Keywords: Bank credit, Capital flows, Corporate sector, Economic models, Exchange rates, External borrowing, External financing, External shocks, Financial sector, Foreign exchange, India, Monetary policy

Suggested Citation

Peiris, Shanaka J. and Saxegaard, Magnus and Anand, Rahul, An Estimated Model with Macrofinancial Linkages for India (January 2010). IMF Working Paper No. 10/21, Available at SSRN: https://ssrn.com/abstract=1544715

Shanaka J. Peiris (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Magnus Saxegaard

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Rahul Anand

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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