TY  - JOUR
AU  - Meng,Qinglai
AU  - Velasco,Andres
TI  - Can Capital Mobility be Destabilizing?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7263
PY  - 1999
Y2  - July 1999
UR  - http://www.nber.org/papers/w7263
L1  - http://www.nber.org/papers/w7263.pdf
N1  - Author contact info:
Andres Velasco
Columbia University
School of International and Public Affairs
420 West 118th Street
New York, NY 10027
Tel: 212/854-3899
E-Mail: avbranes@gmail.com
AB  - In a standard two-sector neoclassical model with distortions, capital mobility can render the steady state indeterminate, in the sense that there exist infinitely many convergent paths. In the closed economy with no international capital mobility, the utility function must be linear or close to it for indeterminacy to occur, while in the open economy the shape of the utility function makes no difference. The reason is that in the no mobility case changes in aggregate investment must be matched by changes in aggregate consumption, while in the case of full capital mobility they can simply be financed by borrowing abroad. The paper provides some theoretical underpinnings to the concerns that de-regulating the capital account may be destabilizing.
ER  -