An Endogenous Growth Model of a Financially Repressed Small Open Economy
AbstractThe paper develops a monetary endogenous growth model of a financially repressed small open economy, characterized by curb markets, capital mobility, transaction costs in domestic and for- eign capital markets, and a flexible exchange rate system, to analyze the impact of financial liberalization– interest rate deregulation and lower multiple reserve requirements, on growth and inflation. When the model is calibrated to match world figures, we find that interest rate deregulation enhances growth and reduces inflation in steady-state. For relatively smaller transaction costs in the curb market, the above result is, however, reversed. Under such circumstances, lowering the transaction costs in the foreign capital market tends to restore the growth-enhancing (inflation- reducing) capabilities of interest rate deregulation. Lower reserve requirements, though, always ensures lower (higher) steady-state inflation (growth).
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Bibliographic InfoPaper provided by University of Pretoria, Department of Economics in its series Working Papers with number 200616.
Length: 26 pages
Date of creation: Jul 2006
Date of revision:
Financial Repression; Growth and Inflation; Unofficial Financial Markets; Monetary Policy;
Other versions of this item:
- Samrat Goswami & Rangan Gupta, 2009. "An Endogenous Growth Model of a Financially Repressed Small Open Economy," International Economic Journal, Taylor & Francis Journals, vol. 23(1), pages 143-161.
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E26 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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