Recent episodes of financial turmoil have highlighted the need to understand how large external shocks are propagated in small open economies. This is particularly relevant in emerging economies, since these economies face additional vulnerabilities that make them very different from advanced economies. Indeed, they usually display weak fiscal, monetary and financial institutional frameworks, and have imperfect access to capital markets. This book studies Dynamic Stochastic General Equilibrium modelling and empirical applications to developed/developing economies. It consists of four self-contained chapters. Chapter 1 sets out a benchmark model with persistence mechanisms and reviews the underlying estimation/validation methods. Chapter 2 studies the relevance of direct supply side effects of monetary policy by introducing the presence of a cost channel of monetary transmission and allowing for non-separability of money and consumption in the households utility. Chapters 3 and 4 model dollarization, as well as financial frictions including a financial accelerator, where capital financing is partly or totally in foreign currency as in Gertler et al. (2003) and Gilchrist (2003).

Bo Yang,PhD Student;Hui Liu,Research Associate;Zhangxin Chen,Professor;Reservoir Simulation Research Group,Chemical and Petroleum Engineering Department,Schulich School of Engineering,University of Calgary.