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Net Foreign Assets, Productivity and Real Exchange Rates in Constrained Economies

Christopoulos, Dimitris K, Gente, Karine, Leon-Ledesma, Miguel A. (2012) Net Foreign Assets, Productivity and Real Exchange Rates in Constrained Economies. European Economic Review, 56 (3). pp. 295-316. ISSN 0014-2921. (doi:10.1016/j.euroecorev.2011.10.001) (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided)

The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided. (Contact us about this Publication)
Official URL
http://dx.doi.org/10.1016/j.euroecorev.2011.10.001

Abstract

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 domestic savings, the RER only depends on the productivity spread between 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.

Item Type: Article
DOI/Identification number: 10.1016/j.euroecorev.2011.10.001
Additional information: number of additional authors: 2;
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculties > Social Sciences > School of Economics
Depositing User: Stewart Brownrigg
Date Deposited: 07 Mar 2014 00:05 UTC
Last Modified: 01 Aug 2019 10:37 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/40520 (The current URI for this page, for reference purposes)
Leon-Ledesma, Miguel A.: https://orcid.org/0000-0002-3558-2990
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