International Finance Discussion Papers (IFDP)
July 2022
SONOMA: a Small Open ecoNOmy for MAcrofinance
Mariano Massimiliano Croce, Mohammad R. Jahan-Parvar, and Samuel Rosen
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.
DOI: https://doi.org/10.17016/IFDP.1349
PDF: Full Paper
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