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Farms, Fertiliser, and Financial Frictions: Yields from a DSGE Model
Author:
Mr. Sébastien Walker
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Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 112
Language:
English
Publication Date:
05 May 2017
DOI:
https://doi.org/10.5089/9781475595772.001
ISBN:
9781475595772
ISSN:
1018-5941
Pages:
52
Keywords:
WP; production function; Monetary policy; Africa; financial frictions; foreign capital flows; DSGE models; supply shocks; world fertiliser price shock; Calvo price-stickiness parameter; rate of return; auditing cost; price inflation; factor price; nominal interest rate; price of fertiliser; fertiliser cost; world cost; expected return; Inflation; Output gap; Exchange rates; Sub-Saharan Africa
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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 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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2017: Issue 112