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Shocks to Terms of Trade and Risk-Premium in an Intertemporal Model: The Dutch Disease and a Dutch Party.

Abstract:

In this paper, we analyze the impact of terms of trade and risk-premium shocks on a small open economy in an intertemporal Dutch disease model, with international capital mobility. Given that an improvement in the terms of trade is associated with a decrease in the risk-premium on lending to this economy, we find that this can lead to a Dutch party (rather than Dutch disease) in which real exchange rate appreciation is associated with an expansion of the capital-intensive traded sector, hence...

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Journal:
Open Economies Review
Volume:
19
Publication date:
2008-01-01
URN:
uuid:1b695e97-6ccc-4da2-bade-ecf06cacea4e
Local pid:
oai:economics.ouls.ox.ac.uk:11142
Language:
English

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