Simulation of a debtor country: The example of Colombia

A dynamic model, illustrated on Colombian data, simulates the functioning of an open economy under specified parametric conditions and selected policy scenarios. Unlike the usual two-sector models, the rate of growth of GDP is generated endogenously. Whereas related models perform sensitivity analysis for variations in parameters our procedure makes n possible to simulate policy alternatives under balance-of-payments pressure. The simulations explore the implications of policy options when debt services on inherited and new foreign indebtedness act as constraints on the debtor's growth, especially when new external borrowing is limited.