Abstract
The paper proposes a new disequilibrium approach to modeling international capital mobility for a dynamic multi- region general equilibrium model. Key to this approach are errors in investors’ assessments of potential returns to capital, such as those recently observed in Asia. The investment theory, compatible with a simple recursive solution procedure, ensures the convergence of the model towards a stable equilibrium, brings realism into the analysis of international capital mobility and flexibility in tailoring to empirical data. The paper discusses two numerical examples, demonstrating the long- run convergence of the model and the dynamic adjustment to a deeper, longer crisis in Asia.
Keywords
Dynamic CGE modeling
Date of this Version
January 2000
COinS
Comments
Paper presented at the Second Annual Conference on Global Economics Analysis, Denmark, June 20-22.