Imperfect Capital Mobility in an Open Economy Model of Capital Accumulation
19 Pages Posted: 12 Feb 2006
Date Written: February 2004
Abstract
This paper introduces a tractable capital market friction mechanism that allows a break of the parity between domestic and external interest rates and generates a gradual evolution of capital stock and other macroeconomic variables--in contrast to the instantaneous convergence found in models with interest rate parity. The friction, derived from explicit microfoundations, is such that the cost of new loans is an increasing function of net borrowing. The paper also presents a two-sector, open economy model of capital accumulation, where the friction mechanism is combined with standard assumptions about household preferences and production technology, which generates plausible dynamics of macroeconomic variables.
Keywords: Real exchange rate, capital inflows, capital accumulation, capital mobility
JEL Classification: F41, F43
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By Carlo Cottarelli, Giovanni Dell'ariccia, ...
-
Modelling the Demand for Loans to the Private Sector in the Euro Area
By Alessandro Calza, Christine Gartner, ...
-
Assessing and Managing Rapid Credit Growth and the Role of Supervisory and Prudential Policies
By Paul Hilbers, Inci Otker-robe, ...
-
Assessing and Managing Rapid Credit Growth and the Role of Supervisory and Prudential Policies
By Paul Hilbers, Inci Otker-robe, ...
-
By Christoph K. Duenwald, Nikolay Gueorguiev, ...
-
Capital Flows to Transition Economies: Master or Servant?
By Leslie Lipschitz, Timothy Lane, ...
-
Capital Flows to Transition Economies: Master or Servant?
By Leslie Lipschitz, Timothy Lane, ...
-
Vulnerabilities in Emerging Southeastern Europe - How Much Cause for Concern?
By Piritta Sorsa, Bas Berend Bakker, ...
-
Aggregate Loans to the Euro Area Private Sector
By Alessandro Calza, Marta Manrique Simón, ...
-
Credit Channel Effects in the Monetary Transmission Mechanism
By Simon Hall