Convergence, capital accumulation and the nominal exchange rate

Peter Benczur and István Kónya

No 2007/2, MNB Working Papers from Magyar Nemzeti Bank (Central Bank of Hungary)

Abstract: This paper develops a flexible price, two-sector nominal growth model, in order to study the role of the exchange rate regime in capital accumulation (convergence). We adopt a standard model of a small open economy with traded and nontraded goods, and enrich its structure with costly investment and a preference for real money holdings. We find that (i) the choice of exchange rate regime influences the transition dynamics of a small open economy, (ii) a one-sector model does not adequately capture the channels through which the nominal side interacts with real variables, and (iii) as a consequence, sectoral asymmetries are important for understanding the effects of the exchange rate regime on capital accumulation.

Keywords: two-sector growth model; small open economy; capital accumulation; household portfolios; real effects of nominal shocks. (search for similar items in EconPapers)
JEL-codes: F32 F41 F43 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2007
New Economics Papers: this item is included in nep-cba, nep-dge and nep-ifn
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Journal Article: Convergence, capital accumulation and the nominal exchange rate (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:mnb:wpaper:2007/2

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