By Stephen J. Turnovsky
Monetary development is an argument of fundamental trouble to coverage makers in either built and constructing economies. therefore, development concept has lengthy occupied a valuable function in economics. during this booklet, popular progress theorist Stephen J. Turnovsky investigates the method of monetary development in a small open economic climate, exhibiting that it truly is delicate to the effective constitution of the financial system. The ebook contains 3 components, starting with versions the place the one intertemporally plausible equilibrium is one during which the financial system is usually on its balanced development direction. Empirical facts indicates really gradual speeds of convergence so the second one a part of the ebook appears at numerous other ways within which transitional dynamics could be brought. within the 3rd and ultimate half, the writer applies the expansion version to the problem of overseas relief, focusing in particular on even if reduction can be untied or tied to the buildup of public capital.
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Additional resources for Capital Accumulation and Economic Growth in a Small Open Economy (The CICSE Lectures in Growth and Development)
Specifically, one can show that now the evolution of wealth and consumption are related by: _ ¼ rð1 À sb ÞW À ð1 þ sc ÞCð0Þewt W The solution to this equation, together with the transversality condition, implies that the equilibrium consumption to wealth ratio is now the following constant: CðtÞ q À cw ¼ WðtÞ 1 þ sc ð2:28Þ and wealth grows at the same steady rate as consumption. Tax rates impact on the various growth rates in much the same way as before. The tax on foreign bond income raises q and thus the growth rate of capital and domestic output, while it lowers the growth rate of total wealth and consumption.
This local instability of the dynamic path depends in part upon our assumptions of a Cobb– Douglas production function and constant elasticity utility function, and justifies our focus on that equilibrium in the present analysis. For more general production functions one cannot dismiss the possibility that the dynamics have a stable eigenvalue, giving rise to potential problems of indeterminate equilibria. In a model with both physical and nonhuman capital, Benhabib and Perli (1994) and Ladro´n-de-Guevara, Ortigueira, and Santos (1997) show how the steady-state equilibrium may become indeterminate.
E. if the intertemporal elasticity of substitution is less than unity, a condition that the overwhelming majority (but not all) empirical studies confirm. 1. 4), for the United Kingdom. Guvenen (2006) provides a recent study that reconciles some of the conflicting evidence on the intertemporal elasticity of substitution. 2 The analytical framework: centrally planned economy 47 equilibrium growth rate in the simplest AK model; see Barro (1990). The only difference is that for the small open economy the (fixed) marginal physical product of capital is replaced by the (given) foreign interest rate.
Capital Accumulation and Economic Growth in a Small Open Economy (The CICSE Lectures in Growth and Development) by Stephen J. Turnovsky