Growth and financial liberalization under capital collateral constraints: The striking case of the stochastic AK model with CARA preferences

We consider a small-open, collateral-constrained AK economy. We show that the combination of CARA preferences and uncertainty on capital inflows generates long-term growth while the deterministic counterpart does not: long-term growth is entirely driven by precautionary savings, and the asymptotic growth rate of the expected capital stock is increasing in both the risk magnitude and the Arrow–Pratt absolute risk aversion parameters.

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Year of publication:	2014
Authors:	Boucekkine, R. ; Fabbri, G. ; Pintus, P.
Published in:	Economics Letters. - Elsevier, ISSN 0165-1765. - Vol. 122.2014, 2, p. 303-307
Publisher:	Elsevier
Subject:	Financial liberalization \| Growth \| CARA preferences \| Collateral constraints \| Precautionary savings

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Type of publication:	Article
Classification:	F34 - International Lending and Debt Problems ; F43 - Economic Growth of Open Economies ; O40 - Economic Growth and Aggregate Productivity. General
Source:	RePEc - Research Papers in Economics

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