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| Author: | Fernandez de Cordoba, G. Kehoe, T.J. |
| Title: | Capital flows and real exchange rate fluctuations following Spain's entry into the European Community |
| Journal: | Journal of International Economics
2000 : JUN, VOL. 51:1, p. 49-78 |
| Index terms: | Exchange rates Economic theory Models Single market European Union Spain Europe |
| Freeterms: | Capital movement |
| Language: | eng |
| Abstract: | Spain's 1986 entry into the European Community was followed by dismantling of restrictions on international capital flows. Initial trade deficits and real exchange rate appreciation were followed by trade surpluses and real exchange rate depreciation. This paper analyzes the financial liberalization of Spain, using a dynamic general equilibrium model with traded and non-traded good where a capital poor country opens itself to its capital rich neighbours. A carefully calibrated model has trouble accounting for the large changes in relative prices observed given the small changes in quantities. Variants of the model with frictions and factor mobility btw. sectors fare better. |
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