Investment Frictions and the Relative Price of Investment Goods in an Open Economy Model | Zendy

Parantap Basu | Zendy; Christoph Thoenissen | Zendy

AI Assistant Blog Pricing

Home ZAIA Blog

Open Access

Investment Frictions and the Relative Price of Investment Goods in an Open Economy Model

Author(s) -

Parantap Basu,

Christoph Thoenissen

Publication year - 2007

Publication title -

ssrn electronic journal

Language(s) - English

Resource type - Journals

ISSN - 1556-5068

DOI - 10.2139/ssrn.958701

Subject(s) - relative price , economics , investment (military) , investment goods , open economy , monetary economics , microeconomics , market economy , macroeconomics , production (economics) , exchange rate , politics , political science , law

Is the relative price of investment goods a good proxy for investment frictions? We analyze investment frictions in an open economy, flexible price, two-country model and show that when the relative price of investment goods is endogenously determined in such a model, the relative price of investment can actually rise in response to a reduction in investment frictions. Only when the model is driven by TFP shocks do we observe a data congruent negative correlation between investment and the relative price of investment goods.

The content you want is available to Zendy users.

Already have an account? Click here to sign in.

Having issues? You can contact us here

Accelerating Research