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Welfare effects of business cycles and monetary policies in a small open emerging economy

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  • Jolan Mohimont

    (Economics and Research Department, NBB and University of Namur)

Abstract

This paper evaluates the welfare cost of business cycles and the effects of monetary policies in a DSGE model tailored to a small open emerging economy. The model generates rich business cycle fluctuations, features labor market idiosyncratic risks and accounts for imperfect financial and capital markets inclusion. In this context, households excluded from financial and capital markets experience larger costs of business cycle fluctuations due to their inability to hedge against labor market idiosyncratic risks. Different degrees of exposure to different types of risks generate divergent preferences regarding the conduct of monetary policy. While a strong response to inflation deviation from target maximizes welfare for included households, excluded households benefit the most from unemployment and wage stabilization policies.

Suggested Citation

  • Jolan Mohimont, 2019. "Welfare effects of business cycles and monetary policies in a small open emerging economy," Working Paper Research 376, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:201911-376
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    Keywords

    Monetary policy; financial exclusion; idiosyncratic risks; labor markets; emerging economies; SOE; DSGE.;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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