Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153225
Authors: 
Bruha, Jan
Podpiera, Jirí
Year of Publication: 
2007
Series/Report no.: 
ECB Working Paper 791
Abstract: 
In this paper we propose an extension to New International Macroeconomic framework by introducing the vertical investment margin. The dynamic properties of the extended model are discussed in relation to relevant existing models with particular emphasis on the impact of productivity convergence and effects of timing of trade and financial liberalization on the convergence patterns. We compare the mechanisms behind the three investment margins (horizontal investment to new varieties, vertical investment to quality, and investment to export-eligibility) for the long-run equilibrium. Based on such comparison, the proposed extension proves crucial for consistent explanation of long-term trends in macroeconomic aggregates and the real exchange rate development observed in European transition countries.
Subjects: 
convergence
New International Macroeconomics
Two-country modeling
JEL: 
F12
F36
F41
Document Type: 
Working Paper

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