Capital Accumulation and Real Exchange Rate Behavior in a Small Open Economy with Credit Market Frictions
AbstractWe consider the nature of the relationship between the real exchange rate and capital formation. We present a model of a small open economy that produces and consumes two goods, one tradable and one not. Domestic residents can borrow and lend aborad, and costly state verification (CSV) is a source of frictions in domestic credit markets. The real exchange rate matters for capital accumulation because it affects the potential for investors to provide internal finance, which mitigates the CSV problem. We demonstrate that the real exchange rate must monotonically approach its steady state level. However, capital accumulation need not be monotonic and real exchange rate appreciation can be associated with either a rising or a falling capital stock. The relationship between world financial market conditions and the real exchange rate is also investigated.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Centro de Investigacion Economica, ITAM in its series Working Papers with number 9604.
Length: 50 pages
Date of creation: 1996
Date of revision:
Other versions of this item:
- Elisabeth Huybens & Gaetano Antinolfi, 1998. "Capital accumulation and real exchange rate behavior in a small open economy with credit market frictions," Economic Theory, Springer, vol. 12(3), pages 461-488.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Nicholas Apergis & Costantinos Katrakilidis & Nikolaos Tabakis, 2006. "Dynamic Linkages between FDI Inflows and Domestic Investment: A Panel Cointegration Approach," Atlantic Economic Journal, International Atlantic Economic Society, vol. 34(4), pages 385-394, December.
- Antunes, António & Cavalcanti, Tiago & Villamil, Anne, 2008.
"Computing general equilibrium models with occupational choice and financial frictions,"
Journal of Mathematical Economics,
Elsevier, vol. 44(7-8), pages 553-568, July.
- António Antunes & Tiago Cavalcanti & Anne Villamil, 2006. "Computing General Equilibrium Models with Occupational Choice and Financial Frictions," SCAPE Policy Research Working Paper Series 0611, National University of Singapore, Department of Economics, SCAPE.
- António R. Antunes & Tiago V. de V. Cavalcanti & Anne Villamil, 2006. "Computing General Equilibrium Models with Occupational Choice and Financial Frictions," Working Papers w200615, Banco de Portugal, Economics and Research Department.
- AntÃƒÂ³nio Antunes & Tiago Cavalcanti & Anne Villamil, 2006. "Computing General Equilibrium Models with Occupational Choice and Financial Frictions," Macroeconomics Working Papers 22560, East Asian Bureau of Economic Research.
- Stefan Krasa & Tridib Sharma & Anne Villamil, 2008. "Bankruptcy and firm finance," Economic Theory, Springer, vol. 36(2), pages 239-266, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Diego Dominguez).
If references are entirely missing, you can add them using this form.