Net Foreign Assets, Productivity and Real Exchange Rates in Constrained Economies
Dimitris K. Christopoulos,
Karine Gente () and
Miguel Leon-Ledesma ()
Studies in Economics from School of Economics, University of Kent
Empirical evidence suggests that real exchange rates (RER) behave differently in developed and developing countries. We develop an overlapping generations two-sector exogenous growth model in which RER determination may depend on the country's capacity to borrow from international capital markets. The country faces a constraint on capital inflows. With high demestic savings, the RER only depends on productivity spread between two sectors (Balassa-Samuelson effect). If the constraint is too tight and/or domestic savings too low, the RER depends on both net foreign assets (transfer effect) and productivity. We then analyze the empirical implications of the model and find that, in accordance with the theory, the RER is mainly driven by productivity and net foreign assets in constrained countries and by productivity in unconstrained countries.
Keywords: Real Exchange Rate; Capital Inflows Constraint; Overlapping Generations (search for similar items in EconPapers)
JEL-codes: E39 F32 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Journal Article: Net foreign assets, productivity and real exchange rates in constrained economies (2012)
Working Paper: Net Foreign Assets, Productivity and Real Exchange Rates in Constrained Economies (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:ukc:ukcedp:1011
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Studies in Economics from School of Economics, University of Kent
Address: School of Economics, University of Kent, Canterbury, Kent, CT2 7NP
Series data maintained by Tracey Girling ().