Working Paper: CEPR ID: DP17339
Authors: Mariano Massimiliano Croce
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 Codes: F3; F4; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| External Debt Shocks (F65) | Domestic Economic Fluctuations (E32) |
| Domestic Credit Shocks (E51) | Output Growth (O40) |
| Domestic Credit Shocks (E51) | Corporate Financial Dynamics (G39) |
| External Equity Shocks (F41) | Domestic Credit Shocks (E51) |
| External Equity Shocks (F41) | Corporate Leverage (G32) |
| External Equity Shocks (F41) | Net Foreign Asset Positions (F21) |