Growth dynamics in a small open economy under political economy frictions
Manuel Amador and
Additional contact information
Mark Aguiar: University of Rochester
No 1363, 2011 Meeting Papers from Society for Economic Dynamics
In this paper we present a full characterization of the growth process in a small open economy under political economy frictions and where politicians cannot commit to debt repayment or tax promises. We study how the dynamics are affected by the curvature of the utility function, the strength of the political economy friction, as well as by the assumptions regarding the shae of the autarky value. We extend the model by incorporating a traded and a non-traded sector and study the behavior of the real exchange rate. We show that countries that face stronger political frictions will tend to grow more slowly, accumulated more debt while maintaining a relatively undervalued real exchange rate. Countries that are able to overcome the political economy frictions, grow faster and save more abroad, while their real exchange rate appreciates.
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:red:sed011:1363
Access Statistics for this paper
More papers in 2011 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().