Imperfect Capital Mobility in an Open Economy Model of Capital Accumulation
AbstractThis 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.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 04/31.
Date of creation: 01 Feb 2004
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Other versions of this item:
- Vladimir Klyuev, 2006. "Imperfect Capital Mobility in an Open Economy Model of Capital Accumulation," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 9(1), pages 21-38, Summer.
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-22 (All new papers)
- NEP-DGE-2005-10-22 (Dynamic General Equilibrium)
- NEP-FMK-2005-10-22 (Financial Markets)
- NEP-MAC-2005-10-22 (Macroeconomics)
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