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Can Capital Mobility be Destabilizing? Author info | Abstract | Publisher info | Download info | Related research | Statistics Meng, Q.
Velasco, A.
In a standard two-sector neoclassical model with distortions, capital mobility can render the steady state indeterminate, in the sense that there exist infinitely many convergent paths. In the closed economy with no international capital mobility, the utility function must be linear or close to it for indeterminacy to occur, while in the open economy the shape of the utility function makes no difference. The reason is that in the no mobility case changes in aggregate investment must be matched by changes in aggregate consumption, while in the case of full capital mobility they can simply be financed by borrowing abroad. The paper provides some solid theoretical underpinnings to the concerns that de-regulating the capital account may be destabilizing.
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Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number
99-16.
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Length: 30 pages
Date of creation: 1999Date of revision:
Handle: RePEc:cvs:starer:99-16Contact details of provider: Postal: C.V. Starr Center, Department of Economics, New York University, 269 Mercer Street 7th Floor, New York, NY 10003 Phone: (212) 998-8936 Fax: (212) 995-3932 Web page: http://www.nyu.edu/econ/cvstarr/index.html More information through EDIRC
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