INCREASING RETURNS, FINANCIAL CAPITAL MOBILITY AND REAL EXCHANGE RATE DYNAMICS

Steven Pennings and Rodney Tyers

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: The late 1990s saw a US IT investment boom, large capital flows into the US and an appreciation of the US$. At the time, this appeared to be driven by expectations of continued IT-related knowledge spill-over externalities and associated productivity and profit growth. Using a two-region dynamic general equilibrium model with externalities, we find a once-off productivity shock leads to capital inflow and a real appreciation only in the short term. In the long term, capital flows stabilise and the real exchange rate depreciates. For a single shock to trigger long-term growth in capital flows requires unrealistically large externalities.

JEL-codes: F21 F31 F32 F41 F43 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2007-09
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Increasing Returns, Financial Capital Mobility and Real Exchange Rate Dynamics (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2007-16

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