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Working Paper

SONOMA: a Small Open ecoNOmy for MAcrofinance


Abstract: We develop a new small open economy model (SONOMA) in which domestic corporate debt and equities are affected by shocks to both external credit and equity markets. In a novel empirical analysis of several small-but-developed economies, we show that both external debt and equity shocks are important determinants of domestic economic fluctuations, corporate leverage, and net foreign asset positions. SONOMA replicates our empirical facts about asset prices, financial flows, and economic activity.

Keywords: External Positions; Credit and Equity Shocks; Asset Pricing;

JEL Classification: F30; F40; G15;

https://doi.org/10.17016/IFDP.2022.1349

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File(s): File format is application/pdf https://www.federalreserve.gov/econres/ifdp/files/ifdp1349.pdf

Authors

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2022-07-14

Number: 1349