Research Discussion Paper – RDP 8710 Transmission of External Shocks in the RBII Model


The paper gives an overview of recent work in the development of the RBII macroeconomic model, focussing on adjustments designed to reflect the post-deregulation financial environment. Changes to the RBII model have been made in two main areas. First, a clearing market for short-term funds has been introduced, making interest rates much more responsive to open market operations. Secondly, a number of adjustments have been made so as to model debt accumulation (both domestic and external) in more detail. The properties of the revised model are illustrated in simulations of a variety of domestic and external shocks. These simulations also serve to illustrate the implications of alternative assumptions about the short term operating objectives of monetary policy.

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