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Measuring External Risks for Peru: Insights from a Macroeconomic Model for a Small Open and Partially Dollarized Economy
Author:
Mr. Fei Han null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2014: Issue 161
Language:
English
Publication Date:
02 Sep 2014
DOI:
https://doi.org/10.5089/9781498327220.001
ISBN:
9781498327220
ISSN:
1018-5941
Pages:
24
Keywords:
WP; interest rate; exchange rate; monetary policy; Macroeconomic Model; Partial Dollarization; External Risk; Spillovers; Macroeconomic Forecast; China scenario; investment slowdown; copper export; U.S. dollar; Peru's output gap; mineral imports; federal funds rate; terms-of-trade gap; macroeconomic response; World metal price inflation; Output gap; Exchange rates; Exchange rate flexibility; Inflation; Metal prices; Global
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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.
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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 dollarization, which could help mitigate the negative spillover effects of these external risks.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund