On the role of relative prices and capital flows in balance-of-payments-constrained growth: the experiences of Portugal and Spain in the euro area

Carlos Garcimartín, Luis A. Rivas and Pilar García Martínez
Authors registered in the RePEc Author Service: Pilar Garcia Martinez ()

Journal of Post Keynesian Economics, 2010, vol. 33, issue 2, 281-306

Abstract: Broadly speaking, the balance-of-payments constraint hypothesis as developed by Thirlwall has been empirically supported. Yet it shows some shortcomings highlighted in the literature. In our opinion, two of them must be analyzed. First, temporary disequilibria and capital flows must be incorporated into the balance-of-payments-constrained growth models. Second, the role of relative prices must be made explicit, since it can be relevant even in an external constraint framework. This study is aimed at developing a model that incorporates both possibilities: temporary external disequilibria and the impact of relative prices. This model is subsequently used to analyze the evolution of the Spanish and Portuguese economies in past decades, and, in particular, the different paths shown by both countries since their accession to the euro zone.

Keywords: exchange rate; external constraint; growth (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (10)

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