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Imperfect Capital Mobility in an Open Economy Model of Capital Accumulation

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  • Vladimir Klyuev

    (International Monetary Fund, US)

Abstract

The paper introduces a tractable capital market friction mechanism that allows a break of the parity between the domestic and external interest rates and generates a gradual evolution of capital stock, consumption, relative prices and the interest rate differential- in contrast to the instantaneous convergence found in models with interest rate parity. The friction, derived from the explicit microfoundations, is such that the cost of new loans is an increasing function o net borrowing. The paper also presents a to-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.

Suggested Citation

  • 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.
  • Handle: RePEc:ekn:ekonom:v:9:y:2006:i:1:p:21-38
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    More about this item

    JEL classification:

    • 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

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