Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/100903
Authors: 
Shrikhande, Milind
Year of Publication: 
1997
Series/Report no.: 
Working Paper, Federal Reserve Bank of Atlanta 97-3
Abstract: 
The implications of the costs of doing business in foreign countries for the resulting capital market equilibrium are studied. When transferring capital goods across national boundaries, the costs incurred are quasi-fixed in a one-good, two-country, intertemporal model with complete financial markets. In our model of the international capital market, deviations from purchasing power parity are endogenously generated. The relative price of physical resources located in one country compared to resources located in another is called the "real exchange rate." The outcome of the model-based analysis is an endogenous generation of a mean-reverting real exchange rate in a continuous-time, general equilibrium model of the international capital market. In dynamic equilibrium, the transfer of capital goods between the two countries is found to be infrequent and lumpy in nature as is observed in foreign direct investment.
Subjects: 
Capital market
International finance
Macroeconomics
Document Type: 
Working Paper

Files in This Item:
File
Size
245.53 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.