Open AccessNon-optimality of the Myopic Decision Rule: The Case of a Two-Sector Open Economy
Author(s) -
Tanmay Biswas
Publication year - 2012
Publication title -
review of economic analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.101
H-Index - 1
ISSN - 1973-3909
DOI - 10.15353/rea.v4i1.1543
Subject(s) - economics , open economy , investment (military) , golden rule , capital (architecture) , population , small open economy , capital allocation line , capital flows , microeconomics , economy , macroeconomics , monetary policy , geography , profit (economics) , philosophy , demography , theology , archaeology , sociology , politics , exchange rate , political science , law
This paper is concerned with optimal allocation of investment in a two-sector open economy with non-shiftable capital. We have assumed a stationary population and fixed terms of trade. It has been shown that, if the economy starts with a small amount of capital in each sector, the myopic decision rule under static expectations will not be compatible with the conditions of optimal investment allocation