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

References

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Journal of Iranian Economic Issues
Volume 8, Issue 2
Autumn and Winter 2022
January 2022
Pages 307-332

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History

  • Receive Date: 22 July 2021
  • Revise Date: 21 September 2021
  • Accept Date: 27 October 2021

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