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Increasing Returns, Financial Capital Mobility and Real Exchange Rate Dynamics

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Author Info
STEVEN PENNINGS
ROD TYERS

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Abstract

The late 1990s saw a US IT investment boom, large capital flows into the USA and an appreciation of the US$. At the time, this appeared to be driven by expectations of continued IT-related knowledge spillover externalities and associated productivity and profit growth. Using a two-region dynamic general equilibrium model with externalities, we find a once-off productivity shock leads to capital inflow and a real appreciation only in the short term. In the long term, capital flows stabilise and the real exchange rate depreciates. For a single shock to trigger long-term growth in capital flows requires unrealistically large externalities. Copyright © 2008 The Economic Society of Australia.

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Article provided by The Economic Society of Australia in its journal Economic Record.

Volume (Year): 84 (2008)
Issue (Month): s1 (09)
Pages: S141-S158
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Handle: RePEc:bla:ecorec:v:84:y:2008:i:s1:p:s141-s158

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rod Tyers & Iain Bain, 2008. "American And European Financial Shocks: Implications For Chinese Economic Performance," CAMA Working Papers 2008-08, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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