A Disequilibrium Model of International Capital Mobility

Elena Ianchovichina, Robert McDougall and Thomas Hertel

GTAP Working Papers from Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University

Abstract: Paper presented at the 2nd Annual Conference on Global Economics Analysis, Denmark, June 20-22. The paper proposes a new disequilibrium approach to modeling international capital mobility for a dynamic multi- region general equilibrium model. Key to this approach are errors in investors’ assessments of potential returns to capital, such as those recently observed in Asia. The investment theory, compatible with a simple recursive solution procedure, ensures the convergence of the model towards a stable equilibrium, brings realism into the analysis of international capital mobility and flexibility in tailoring to empirical data. The paper discusses two numerical examples, demonstrating the long- run convergence of the model and the dynamic adjustment to a deeper, longer crisis in Asia.

Date: 2000
Note: GTAP Working Paper No. 10
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:gta:workpp:399

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