The macroeconomic role of the collateral constraint in resource-rich countries

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Abstract

In this paper, we consider DSGE model of a small open economy highly dependent on resource export. The aim of the study is to identify the role of the collateral constraint in the terms-of-trade (TOT) shock transmission. The model contains two non-linear constraints in the form of inequalities: the collateral constraint and the zero lower bound constraint. We have found that if the monetary policy is not inertial, then under a series of unidirectional TOT shocks, the response of the economy is highly skewed with respect to positive and negative shocks. Both inequalities bind and reduce the positive impact of the TOT shock. If the monetary policy is inertial or the central bank reacts poorly to inflation change, then only the collateral constraint binds, and the effect of asymmetry almost disappears

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About the authors

Mikhail Y. Andreyev

Bank of Russia; RANEPA

Email: emm@cemi.rssi.ru

Senior economist; senior researcher

Russian Federation, Moscow

Andrey V. Polbin

Russian Presidential Academy of National Economy and Public Administration (RANEPA), Moscow; Gaidar Institute

Author for correspondence.
Email: emm@cemi.rssi.ru

Head of the Laboratory on economic processes mathematical modeling

Russian Federation

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2. Figure 1 - impulse response functions for the case of high inertia of the DCT

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3. Figure 2 – impulse response functions for the case of high inertia of the monetary policy and the absence of restrictions on the non-negativity of the interest rate

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4. Figure 3 – impulse response functions for the case of low DCT inertia

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