Imperfect Capital Mobility in an Open Economy Model of Capital Accumulation

Download or read book Imperfect Capital Mobility in an Open Economy Model of Capital Accumulation written by Vladimir Klyuev and published by . This book was released on 2006 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.