Studying the financial accelerator effect in a two-sector DSGE model for an export-oriented economy

Abstract

The article analyzes the financial accelerator effect in a two-sector DSGE model for an export-oriented economy with particular attention to TOT shock and monetary policy. Capital and labor are used for non-tradable and exportable goods production, but exportable goods production requires an additional factor - the "land". We found that the financial accelerator mechanism amplifies investment significantly and has almost no effect on the output. Amplification of the shocks is not symmetric: the fact of shocks acceleration or attenuation depends on the type of shocks and the form of monetary policy. Financial imperfections reinforce the impact of the TOT shock both under the managed exchange rate policy and under the foating exchange rate policy, but under the foating exchange rate policy the amplification is weaker. It is shown that the financial accelerator effect increases with diminishing of the role of the production factor "land" in exportable sector. We show that the attenuation effect in the presence of productivity shock in non-tradable sector is due to the weak growth of the rental price of capital. The weak growth of the rental price results in deterioration of entrepreneurs' balance sheet and therefore the conditions for the functioning of entrepreneurs are getting worse.