Financial Markets and Stochastic Growth
Zurich IEER Working Paper No. 66
29 Pages Posted: 7 Feb 2001
Date Written: November 2000
Abstract
In this paper, we study the effect of financial markets on the investment of a two-good two-country economy with stochastic production in a dynamic framework. Each country produces and invests only one good and, therefore, makes decisions as a central planner in an optimal growth model. Trade between consumers of both countries, however, takes place on competitive (spot or financial) markets. We compare the investment-consumption decisions of both "market" models with the benchmark-case of an integrated world-equilibrium. In the log-linear case, we can uniquely characterize the state-dependent preferences of consumers that lead to dynamically efficient investment decisions. We show that the investment decisions in both "market" models are, in general, inefficient as compared with the efficient, or integrated world economy, case.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Dynamic Externalities and Policy Coordination
By Manjira Datta and Leonard J. Mirman
-
Externalities, Market Power and Resource Extraction
By Manjira Datta and Leonard J. Mirman
-
Intertemporal Cournot and Walras Equilibrium
By Tito Cordella and Manjira Datta
-
Lattice Methods in Computation of Sequential Markov Equilibrium in Dynamic Games
By Manjira Datta, Leonard J. Mirman, ...
-
Stationary Temporary Equilibrium in a General Model of Optimal Accumulation and Trade
-
Sample-Path Stability of Non-Stationary Dynamic Economic Systems
-
Strategic Resource Extraction, Capital Accumulation and Overlapping Generations
By Leonard J. Mirman and Ted To
-
Information Structure and the Tragedy of the Commons in Resource Extraction
By Rabah Amir and Niels Nannerup