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

@inproceedings{Boucekkine2013GrowthAF,
  title={Growth and financial liberalization under capital collateral constraints : The striking case of the stochastic AK model with CARA preferences ∗},
  author={Raouf Boucekkine and Giorgio Fabbri and Patrick Pintus},
  year={2013}
}
We consider a small-open, collateral-constrained AK economy. We show that the combination of CARA preferences and uncertainty on capital inflows in such an economy generates long-term (expected) growth while the deterministic counterpart does not. In this framework, long-term growth is entirely driven by precautionary savings. In particular, we show that the asymptotic growth rate of the expected capital stock is an increasing function of both the risk parameter and the Arrow-Prat absolute risk… CONTINUE READING

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