
Contents
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1 Introduction 1 Introduction
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2 The Economy of Zambia and the Global Financial Crisis 2 The Economy of Zambia and the Global Financial Crisis
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3 Core Model Structure 3 Core Model Structure
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3.1 Households 3.1 Households
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3.2 Firms 3.2 Firms
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3.2.1 Domestic Firms 3.2.1 Domestic Firms
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3.2.2 Exporting Firms 3.2.2 Exporting Firms
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3.3 The Banking Sector 3.3 The Banking Sector
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3.4 Monetary Authority 3.4 Monetary Authority
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3.5 The Government 3.5 The Government
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3.6 Relationship with the Rest of the World 3.6 Relationship with the Rest of the World
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4 Applying the Model to Zambia 4 Applying the Model to Zambia
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4.1 The Zambia Dataset 4.1 The Zambia Dataset
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4.2 Calibration and Functional Forms 4.2 Calibration and Functional Forms
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4.3 Overview of Shocks and the Transmission Mechanism 4.3 Overview of Shocks and the Transmission Mechanism
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4.4 Replicating the Crisis 4.4 Replicating the Crisis
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4.5 Baseline Results 4.5 Baseline Results
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4.5.1 A Digression on Fiscal Policy 4.5.1 A Digression on Fiscal Policy
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4.6 Shock Decomposition 4.6 Shock Decomposition
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4.7 The Role of the Monetary Policy Response: Shock Counterfactuals 4.7 The Role of the Monetary Policy Response: Shock Counterfactuals
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4.8 The Role of the Monetary Policy Response: Rule Counterfactuals 4.8 The Role of the Monetary Policy Response: Rule Counterfactuals
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4.9 The Role of the Nominal Rigidities 4.9 The Role of the Nominal Rigidities
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5 Understanding the Initial Monetary Policy Response 5 Understanding the Initial Monetary Policy Response
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6 Conclusion 6 Conclusion
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Appendix 17A: Quarterly macroeconomic and financial variables Appendix 17A: Quarterly macroeconomic and financial variables
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References References
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17 Monetary Policy in Low-Income Countries in the Face of the Global Crisis: A Structural Analysis
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Published:March 2018
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Abstract
The authors develop a dynamic stochastic general equilibrium (DSGE) model with a banking sector to analyse the impact of the financial crisis in developing countries and the role of the monetary policy response, with an application to Zambia. The crisis is interpreted as a combination of three related shocks: a worsening in the terms of the trade, an increase in the country’s risk premium, and a decrease in the risk appetite of local banks. Model simulations broadly match the path of the economy during this period. The model-based analysis reveals that the initial policy response contributed to the domestic impact of the crisis by further tightening financial conditions. The authors derive policy implications for central banks, and for dynamic stochastic general equilibrium modelling of monetary policy, in low-income countries.
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