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An Interest Rate Shock and the Behavior of a Small Borrowing Economy

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Authors
Cha, Baekin
Issue Date
1990-07
Publisher
Institute of Economic Research, Seoul National University
Citation
Seoul Journal of Economics, Vol.3 No.3, pp. 293-312
Abstract
For those industrializing countries which borrow from abroad

mainly for investment purposes, investment decision is not passive

as predicted by the one-sector growth models. Using the

Blanchard-Fischer model with installation costs of investment

which separate investment decision from saving decision, we

analyze the impacts of the world interest rate shock and show

that a drop in the world interest rate cannot always be taken as

a favorable shock to the small borrowing economy. While the

lower interest rate increases the external debt due to active

investment, it can increase or decrease consumption.
ISSN
1225-0279
Language
English
URI
http://hdl.handle.net/10371/899
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College of Social Sciences (사회과학대학)Institute of Economics Research (경제연구소)Seoul Journal of EconomicsSeoul Journal of Economics vol.03(3) (Fall 1990)
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