October 4, 2006 Péter Benczúr - István Kónya: Nominal growth of a small open economy
The seminar will be held in the Visitor Centre at 3 pm.
Péter Benczúr (MNB and CEU)
and
István Kónya (MNB and CEU)
Abstract
This paper develops a flexible price, two-sector nominal growth model, in order to study the nominal aspects of capital accumulation (convergence). We adopt a classical model of a small open economy with traded and nontraded goods, and enrich its structure with gradual 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.