This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Collateral Constraints and Macroeconomic Adjustment in an Open Economy

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Philip L. Brock
Abstract

This paper analyzes a small open economy Ramsey growth model with convex investment costs and a collateral constraint on borrowing. Optimal control methods are used to characterize the dynamics of investment, consumption, and debt. The analysis demonstrates that the economy’s adjustment speed depends on the fraction of the capital stock that can be used as collateral. In the presence of non-convexities, a higher loan-to-value of the capital stock may produce a bifurcation in the dynamics by increasing the economy’s adjustment speed. In contrast to the canonical small open economy model with convex investment costs, domestic and foreign savings are growth-rate complements due to the interaction between domestic savings, the price of capital, and the borrowing constraint. The standard closed economy Ramsey model, the Cohen-Sachs debt repudiation model, and the canonical small open economy model with adjustment costs are shown to be special cases of the analysis.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.econ.washington.edu/user/plbrock/Ramseycollateral012709.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by University of Washington, Department of Economics in its series Working Papers with number UWEC-2009-03.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:udb:wpaper:uwec-2009-03

Contact details of provider:
Postal: Box 353330, Seattle, WA 98193-3330
Email:
Web page: http://www.econ.washington.edu/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Michael Goldblatt).

Related research
Keywords:

Other versions of this item:

This paper has been announced in the following NEP Reports: References listed on IDEAS
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. Enrique G. Mendoza, 2008. "Sudden stops, financial crises and leverage: a Fisherian deflation of Tobin's Q," International Finance Discussion Papers 960, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  2. Robert J. Barro & N. Gregory Mankiw & Xavier Sala-i-Martin, 1995. "Capital Mobility in Neoclassical Models of Growth," NBER Working Papers 4206, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-81, September. [Downloadable!] (restricted)
  4. Andrew B. Abel & Olivier J. Blanchard, 1983. "An Intertemporal Model of Saving and Investment," NBER Working Papers 0885, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Cohen, Daniel & Sachs, Jeffrey, 1986. "Growth and external debt under risk of debt repudiation," European Economic Review, Elsevier, vol. 30(3), pages 529-560, June. [Downloadable!] (restricted)
    Other versions:
  6. Frenkel, Jacob A & Rodriguez, Carlos Alfredo, 1975. "Portfolio Equilibrium and the Balance of Payments: A Monetary Approach," American Economic Review, American Economic Association, vol. 65(4), pages 674-88, September. [Downloadable!] (restricted)
  7. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "The intertemporal approach to the current account," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 34, pages 1731-1799 Elsevier. [Downloadable!] (restricted)
    Other versions:
  8. Matsuyama, Kiminori, 1987. "Current account dynamics in a finite horizon model," Journal of International Economics, Elsevier, vol. 23(3-4), pages 299-313, November. [Downloadable!] (restricted)
  9. Turnovsky, Stephen J & Sen, Partha, 1991. "Fiscal Policy, Capital Accumulation, and Debt in an Open Economy," Oxford Economic Papers, Oxford University Press, vol. 43(1), pages 1-24, January. [Downloadable!] (restricted)
    Other versions:
  10. Hart, Oliver & Moore, John, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 841-79, November. [Downloadable!] (restricted)
    Other versions:
  11. Brock, Philip L., 1988. "Investment, the current account, and the relative price of non-traded goods in a small open economy," Journal of International Economics, Elsevier, vol. 24(3-4), pages 235-253, May. [Downloadable!] (restricted)
  12. Eswar S. Prasad & Raghuram G. Rajan & Arvind Subramanian, 2007. "Foreign Capital and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(2007-1), pages 153-230. [Downloadable!]
    Other versions:
  13. Maurice Obstfeld, 1981. "Macroeconomic Policy, Exchange-Rate Dynamics, and Optimal Asset Accumulation," NBER Working Papers 0599, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Willem H. Buiter, 1984. "Saddlepoint Problems in Contifuous Time Rational Expectations Models: A General Method and Some Macroeconomic Ehamples," NBER Technical Working Papers 0020, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  15. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
    Other versions:
  16. Francesco Giavazzi & Charles Wyplosz, 1984. "The Real Exchange Rate, the Current Account, and the Speed of Adjustment," NBER Chapters, in: Exchange Rate Theory and Practice, pages 335-356 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  17. Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," The Quarterly Journal of Economics, MIT Press, vol. 120(1), pages 173-222, January.
    Other versions:
  18. Adolfson, Malin & Laseen, Stefan & Linde, Jesper & Villani, Mattias, 2007. "Bayesian estimation of an open economy DSGE model with incomplete pass-through," Journal of International Economics, Elsevier, vol. 72(2), pages 481-511, July. [Downloadable!] (restricted)
    Other versions:
  19. Caballero, Ricardo J. & Krishnamurthy, Arvind, 2001. "International and domestic collateral constraints in a model of emerging market crises," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 513-548, December. [Downloadable!] (restricted)
    Other versions:
  20. Obstfeld, Maurice, 1989. "Fiscal deficits and relative prices in a growing world economy," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 461-484, May. [Downloadable!] (restricted)
    Other versions:
  21. Schmitt-Grohe, Stephanie & Uribe, Martin, 2003. "Closing small open economy models," Journal of International Economics, Elsevier, vol. 61(1), pages 163-185, October. [Downloadable!] (restricted)
    Other versions:
  22. Matsuyama, Kiminori, 1991. "Increasing Returns, Industrialization, and Indeterminacy of Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 617-50, May. [Downloadable!] (restricted)
    Other versions:
  23. S. Rao Aiyagari & Mark Gertler, 1999. ""Overreaction" of Asset Prices in General Equilibrium," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 3-35, January. [Downloadable!] (restricted)
    Other versions:
  24. Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May. [Downloadable!] (restricted)
  25. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2004. "Financial development and the instability of open economies," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1077-1106, September. [Downloadable!] (restricted)
    Other versions:
  26. Lipton, David & Sachs, Jeffrey, 1983. "Accumulation and growth in a two-country model : A simulation approach," Journal of International Economics, Elsevier, vol. 15(1-2), pages 135-159, August. [Downloadable!] (restricted)
  27. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July. [Downloadable!] (restricted)
  28. Fischer, Stanley & Frenkel, Jacob A., 1972. "Investment, the two-sector model and trade in debt and capital goods," Journal of International Economics, Elsevier, vol. 2(3), pages 211-233, August. [Downloadable!] (restricted)
  29. Lane, Philip R, 2001. "International Trade and Economic Convergence: The Credit Channel," Oxford Economic Papers, Oxford University Press, vol. 53(2), pages 221-40, April.
  30. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August. [Downloadable!] (restricted)
  31. Fabio Braggion & Lawrence J. Christiano & Jorge Roldos, 2007. "Optimal Monetary Policy in a 'Sudden Stop'," NBER Working Papers 13254, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  32. Jappelli, Tullio & Pagano, Marco, 1994. "Saving, Growth, and Liquidity Constraints," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 83-109, February. [Downloadable!] (restricted)
    Other versions:
  33. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    Other versions:
  34. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January. [Downloadable!] (restricted)
    Other versions:
  35. Devereux, Michael B & Poon, Doris, 2004. "A Simple Model of Optimal Monetary Policy with Financial Constraints," CEPR Discussion Papers 4370, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  36. J. Hirshleifer, 1958. "On the Theory of Optimal Investment Decision," Journal of Political Economy, University of Chicago Press, vol. 66, pages 329. [Downloadable!] (restricted)
Full references

Statistics
Access and download statistics

Did you know? You can import bibliographic info in various formats into you bibliographic tool, or just into your word processor. See under "publisher info" on each abstract page.

This page was last updated on 2009-11-24.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.