Abstract

CEREZO AGUIRRE, Sergio. Removal of monetary stimulus in the U.S. and simulation of some effects on Latin American Economies. rlde [online]. 2016, n.25, pp.171-200. ISSN 2074-4706.

Uncertainty about the future of fiscal and monetary policies in the United States has disrupted the behavior of international exchange and financial markets. After several announcements, in 2014 the US Federal Reserve decided to begin the gradual removal of monetary stimulus, generating voices of warning about the supposed fragility of Latin America economies. In this sense, this paper examines and simulates those effects on a group of economies in the region (Brazil, Chile, Colombia and Peru). For that purpose, a calibrated Dynamic Stochastic General Equilibrium model is employed, and the following events are analyzed: a) tightening of financing conditions/higher international interest rates; and b) greater external demand. From the simulations, we can deduce that an eventual recovery of the U.S. economy can generate a fall in the output gap accompanied by minor inflationary pressures in Latin American countries, given an increase in international interest rates. However, increased external demand, as a consequence of this recovery, would generate a rebound in the output gap and inflationary pressures in the region. The final effect on GDP and inflation will depend on which of the two effects is more important and the ability to react as well as the fundamentals of each economy.

Keywords : Macroeconomic outlook; monetary policy; dynamic stochastic general equilibrium models.

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