Exchange rate intervention in small open economies: The role of risk premium and commodity price shocks

García, Carlos; González, Wildo D.

doi:10.1016/j.iref.2012.08.012

Cited by 17 publications

(11 citation statements)

References 52 publications

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“…The coefficients ω q and ω d represent the sensitivity of the sovereign risk premium with respect to the commodity price and external debt respectively. As noted by García and González (2013), a higher risk premium induces capital outflow and depreciates the exchange rate. Moreover, the exchange rate depends negatively on commodity prices and positively on external debt to GDP ratio, as shown by Cashin et al(2004).…”

Section: Exchange Rate and External Debtmentioning

confidence: 99%

“…The standard error of the shocks are inverse-gamma distribution with a mean 0.1 and two degrees of freedom. We use the same prior values for all countries in our sample as in García and González (2013). This allows the data to reveal the degree of fit of these values to the realities of the countries.…”

Section: Prior Distribution and Calibration Of The Parametersmentioning

confidence: 99%

“…The monetary smoothing parameter is assumed to beta distribution with a mean 0.75 and standard error 0.1. Lastly, similar to García and González (2013), the policy reaction parameters to real exchange rate is assumed to be a beta mean 0.5 and standard error 0.1. We assume the same value for reaction to commodity price shocks.…”

Section: Prior Distribution and Calibration Of The Parametersmentioning

confidence: 99%

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Macroeconomic shocks and fluctuations in African economies

Rasaki

Malikane

2015

Economic Systems

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Section: Exchange Rate and External Debtmentioning

confidence: 99%

Section: Prior Distribution and Calibration Of The Parametersmentioning

confidence: 99%

Section: Prior Distribution and Calibration Of The Parametersmentioning

confidence: 99%

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Macroeconomic shocks and fluctuations in African economies

Rasaki

Malikane

2015

Economic Systems

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“…The coefficients

ω_{q}

and

ω_{d}

measure the sensitivity of the sovereign risk premium with respect to the commodity price and external debt, respectively. A higher risk premium induces capital outflow and depreciates the exchange rate (see García and González, ). Similar to Cashin et al .…”

Section: The Modelmentioning

confidence: 99%

Sovereign wealth funds and macroeconomic stability in oil‐exporting African countries

Rasaki

Malikane

2018

OPEC Energy Review

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This paper investigates the effectiveness of sovereign wealth funds (SWFs) in reducing macroeconomic volatility occasioned by oil price shocks in oil‐exporting African countries. The oil price boom‐bust cycles complicate fiscal operations, distort budget implementation and trigger macroeconomic instability in oil exporting African countries. We formulate and simulate a dynamic stochastic general equilibrium model that features SWFs and the fiscal sector. We compare a baseline model without the SWFs to a model with the SWFs. The simulation analysis suggests that the establishment of SWFs can mitigate the vulnerability of oil‐exporting African countries to oil price shocks. In particular, SWFs can reduce fiscal expenditure and real exchange rate volatility. Furthermore, SWFs can stabilise the level of external debt and reduce the level of money supply thereby sterilising the oil revenue. Since oil price shock is one of the important external shocks inducing economic instability in oil‐exporting African countries, the creation of SWFs can insulate these economies from external shocks.

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“…In both papers, the risk premium is expressed as the difference between the return of an asset and the unobserved risk-free return of the same asset. García and González (2013) lay out a risk premium term related to a risk premium shock, external-debt-to-GDP ratio, and the real exchange rate. In their model, the risk premium shock is a driving source of credit frictions in the international capital market.…”

Section: Introductionmentioning

confidence: 99%

Funding liquidity constraints and the forward premium anomaly in a DSGE model

Chu

2015

International Review of Economics & Finance

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Exchange rate intervention in small open economies: The role of risk premium and commodity price shocks

Cited by 17 publications

References 52 publications

Macroeconomic shocks and fluctuations in African economies

Macroeconomic shocks and fluctuations in African economies

Sovereign wealth funds and macroeconomic stability in oil‐exporting African countries

Funding liquidity constraints and the forward premium anomaly in a DSGE model

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