Template-Type: ReDIF-Paper 1.0
Author-Name: Péter Benczúr
Author-X-Name-First: Péter
Author-X-Name-Last: Benczúr
Author-Email: benczurp@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank
Author-Name: István Kónya
Author-X-Name-First: István
Author-X-Name-Last: Kónya
Author-Email: konyai@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank

Title: Convergence, capital accumulation and the nominal exchange rate

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.

Length: 40 pages
Creation-Date: 2007
File-URL: http://www.mnb.hu/letoltes/wp2007-2.pdf
File-Format: Application/pdf

Number: 2007/2
Classification-JEL: F32, F41, F43.
Keywords: two-sector growth model, small open economy, capital accumulation, household portfolios, real effects of nominal shocks.
Handle: RePEc:mnb:wpaper:2007/2