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Imperfect Capital Mobility in an Open Economy Model of Capital Accumulation

Author/Editor: Klyuev, Vladimir
Authorized for Distribution: February 1, 2004
Electronic Access: Free Full Text (PDF file size is 268KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This 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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Series: Working Paper No. 04/31
Subject(s): Real effective exchange rates | Capital inflows | Capital accumulation | Economic models
Author's keyword(s): Real Exchange Rate | Capital Inflows | Capital Accumulation | Capital Mobility
 
English  
    Published:   February 1, 2004        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA0312004   Pages:   18
    Price:   US$15.00 (Academic Rate: US$15.00 )
       
     
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