Analyzing International Capital Flows between Developing and Developed Countries Using a Two-Country Dynamic Stochastic General Equilibrium (DSGE) Model under Asymmetric Information Structure

Document Type : Scientific-research

Authors

1 PhD Student of International Economics, Faculty of Administrative Sciences and Economics, University of Isfahan, Isfahan

2 Assistant Professor of International Economics, Faculty of Administrative Sciences and Economics, University of Isfahan

3 Assistant Professor of Economics, Faculty of Humanities, University of Bojnord, Bojnord

Abstract

In this study, in order to investigate the different forms of capital flow between developing and developed countries in the steady state, a two-country dynamic stochastic general equilibrium (DSGE) model, under asymmetric information, is developed. For simulating countries, the parameters of previous studies are used. The results showed that there is high correlation between the two groups of countries so that a shock in one country changes the production and consumption in the other one. In addition, international risk sharing and consumption smoothing is the most important factor shaping the international capital flows. Although, due to the high marginal production of capital, capital inflows into the developing country are in the form of stocks and direct investments. Because of the international risk-sharing and consumption smoothing, capital outflows are in the form of bonds and foreign reserves. In addition, when there is asymmetric information between the economic agents of the two countries about the productivity shocks of each country, capital inflows and outflows in the steady-state will be decreased.
 

Keywords


دلالی اصفهانی، رحیم و دل­انگیزان، سهراب. (1383). تحلیلی بر جریان معکوس سرمایه بین کشورهای فقیر و غنی. دو فصلنامه جستارهای اقتصادی.( 2)، 86-67.
سعادت­ نژاد، عبدالحمید، طباطبایی نسب، زهره، ابطحی، سید یحیی و دهقان تفتی، محمدعلی. (1398). اثرات مداخله بانک مرکزی در بازار ارز بر متغیرهای کلان اقتصادی در ایران در قالب الگوی تعادل عمومی پویای تصادفی (DSGE). فصلنامه راهبرد اقتصادی. 8(31)، 115-79.
محمدزاده اصل، نازی؛ صبری بقایی، آذرخش و مدیرروستا، محمود رضا. (1387). بررسی عوامل مؤثر بر جریان­های سرمایه خارجی در کشورهای درحال توسعه. فصلنامه اقتصاد مالی(اقتصاد مالی و توسعه).( 5)، 9-29.
Akhtaruzzaman, M, Hajzler, C & Owen, P.D. (2017). Does institutional quality resolve the Lucas Paradox? Applied Economics, 50(5), 455-474.
Alfaro, L, Kalemli-Ozcan, S & Volosovych, V. (2008). Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation. The Review of Economics and Statistics, 90(2), 347-368.
Benigno, P & Nistico, S. (2012). International Portfolio Allocation under Model Uncertainty. American Economic Journal, Macroeconomics, 4(1), 144-189.
Calvo, G.A. (1983). Staggered prices in a utility maximizing framework. Journal of Monetary Economics, 12, 383–98.
Caselli, F, & Feyrer, J. (2007). The Marginal Product of Capital. The Quarterly Journal of Economics, 122(2), 535-568.
Dai, L. (2012) Does the DSGE model fit the Chinese economy? A Bayesian and Indirect Inference approach (PhD Thesis). Cardiff University.
Dai, L, Minford, P & Zhou, P. (2015). A DSGE model of China. Applied Economics, 47(59), 6438-6460.
Devereux, M & Sutherland, A. (2006). Solving for Country Portfolios in Open Economy Macro Models. CEPR Discussion Paper, No 5966.
Devereux, M & Sutherland, A. (2009). A Portfolio Model of Capital Flows to Emerging Markets. Journal of Development Economics, 89, 181–193.
Engel, C & Matsumoto, A. (2005). Portfolio Choice in a Monetary Open-Economy DSGE Model. IMF Working Paper, WP/05/165.
Gali, J. (2008). Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework. Princeton University Press.
Gertler, M & Rogoff, K. (1990). North-South lending and endogenous domestic capital market inefficienciesJournal of Monetary Economics, Elsevier, 26(2), pages 245-266.
Gourinchas, P & Jeanne, O. (2013). Capital Flows to Developing Countries: The Allocation Puzzle. Review of Economic Studies, 80(4), 1484-1515.
Noorbakhshs, F & Paloni, A. (2001). Human Capital and FDI Inflows to Developing Countries: new Empirical Evidence. World Development, 29(9), 1593-1610.
Rabitsch, K, Stepanchuk, S & Tsyrennikov, V. (2015). International Portfolios: a comparison of solution methods. Journal of International Economics, 97(2), 404-422.
Samuelson, P.A. (1970). The fundamental approximation theorem of portfolio analysis in terms of means, variances and higher moments. Review of Economic Studies, 37. 537–542.
Sims, C.A. (2002). Solving linear rational expectations models. Computational Economics, 20 (1–2). 1 – 20.
Smets, F & Wouters, R. (2007). Shocks and frictions in US business cycles: a Bayesian DSGE approach. American Economic Review, 97, 586–606.
Walsh, C.E. (2010). Monetary Theory and Policy. The MIT Press, 3rd edition.
The World Bank (2021). World Development Indicators. https://data.worldbank.org/
Volume 8, Issue 2
Autumn and Winter 2022
January 2022
Pages 307-332
  • Receive Date: 22 July 2021
  • Revise Date: 21 September 2021
  • Accept Date: 27 October 2021