Measuring External Risks for Peru: Insights from a Macroeconomic Model for a Small Open and Partially Dollarized Economy

by Han Fei

This paper quantifies the effects of external risks for Peru, with particular attention to two major external risks, China's investment slowdown and the U.S. monetary policy tightening. In particular, a macroeconomic model for a small open and partially dollarized economy is developed and estimated for Peru to measure the risk spillovers, and simulate domestic macroeconomic responses in different scenarios with these two external risks. The simulation results suggest that Peru's output is vulnerable to both risks, particularly the U.S. monetary policy tightening. Simulations also highlight the importance of higher exchange rate flexiblity and a lower degree of dollarization, which could help mitigate the negative spillover effects of these external risks.

24 pages, Kindle Edition

First published September 2, 2014

About the author

Han Fei (Chinese: 韓非; [xǎn fə́ɪ]; c. 280 – 233 BC), also known as Han Feizi, was an influential political Chinese philosopher of the Warring States period who synthesized the methods of earlier Chinese Realpolitik using the relatively recent innovation of rule by law as a base, as described in his eponymous work.

Han borrowed Shang Yang's emphasis on laws, Shen Buhai's emphasis on technique, and Shen Dao's ideas on authority and prophecy, emphasizing that the autocrat will be able to achieve firm control over the state with the mastering of his predecessors methodologies: his position of power (勢, Shì); technique (術, Shù), and law (法, Fǎ).

Han Fei's philosophy was very influential on the future first emperor of China, Qin Shi Huang. After the early demise of the Qin Dynasty, Han Fei's philosophy was officially vilified by the following Han Dynasty. Despite its outcast status throughout the history of imperial China, Han Fei's political theory continued to heavily influence every dynasty afterwards, and the Confucian ideal of a rule without laws was never again realized.

(from Wikipedia)