This paper reexamines the view that opening capital markets must have long-run benefits. The analysis shows that the desirability of opening a country's capital markets depends on the nature of the technology assumed. Models of knowledge-based growth predict that changes that alter the economy's...

An optimizing model with overlapping generations and finance constraints is used to develop microfoundations for the monetary adjustment process under fixed exchange rates. The results are broadly consistent with those of the monetary approach to the balance of payments. However, it is shown...