An endogenous growth model of a financially repressed small open economy
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Date
Authors
Goswami, Samrat
Journal Title
Journal ISSN
Volume Title
Publisher
University of Pretoria, Department of Economics
Abstract
The paper develops a monetary endogenous growth model of a financially repressed small open economy, characterized by curb markets, capital mobility, transaction costs in domestic and foreign capital markets, and a flexible exchange rate system, to analyze the impact of financial
liberalization-interest rate deregulation and lower multiple reserve requirements, on growth and inflation. When the model is calibrated to match world figures, we find that interest rate deregulation enhances growth and reduces inflation in steady-state. For relatively smaller transaction
costs in the curb market, the above result is, however, reversed. Under such circumstances, lowering the transaction costs in the foreign capital market tends to restore the growth-enhancing
(inflation-reducing) capabilities of interest rate deregulation. Lower reserve requirements, though, always ensures lower (higher) steady-state inflation (growth).
Description
Keywords
Financial repression, Growth, Inflation, Unofficial financial markets, Monetary policy
Sustainable Development Goals
Citation
Goswami, S & Gupta, R 2006, 'An endogenous growth model of a financially repressed small open economy', University of Pretoria, Department of Economics, Working paper series, no. 2006-16. [http://web.up.ac.za/default.asp?ipkCategoryID=736&sub=1&parentid=677&subid=729&ipklookid=3]