The Dynamics of Price of Equity, Capital Accumulation and Current Account in an One-Good Optimizing Model

Abstract

This paper analyzes the effects of changes in fiscal policies or world interests on the dynamics of the price of equity, the level of capital accumulation and the current account for a small open economy in which the process of capital accumulation entails adjustment costs. It emphasizes the role of production technology as a determinant of the dynamics of the current account. Also the interactions among the price of equity, capital accumulation, And the current account are studied by using the fact that in the one good model with adjustment costs. the shadow price of installed capital can be interpreted as the price of equity with some innocuous assumptions.