SONOMA: a Small Open ecoNOmy for MAcrofinance

RePEc Short ID: pcr73
ORCID iD: 0000-0003-1540-9506

Croce, Mariano; Jahan-Parvar, Mohammad R.; Rosen, Samuel

doi:10.17016/IFDP.2022.1349

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