Foreign Capital Inflow and Financial Crisis in a Dynamic Model

Posted: 30 Jun 2015

See all articles by Gopal K. Basak

Gopal K. Basak

Indian Statistical Institute, Kolkata

Pranab Kumar Das

Centre for Studies in Social Sciences, Calcutta

Allena Rohit

Indian Statistical Institute, Kolkata

Date Written: June 11, 2015

Abstract

The paper models foreign capital inflow in a multi-period framework from the developed to the developing countries. The market for foreign loan together with the foreign exchange market simultaneously determines interest rate in the international loan market and the exchange rate. We also derive the conditions for existence of meaningful equilibrium solutions. Because of non-linearity of the functions we adopt a numerical solution method. A number of comparative dynamic analyses explore the impact of parameters of the model on the endogenous variables. The model is then used to explain the possibility of financial crisis originating either in the developed country or in the developing country. The explanation of crisis in this structure is based on trade theoretic terms in a dynamic terms of trade framework rather than in terms of informational imperfections.

Keywords: Capital Inflow, Interest Rate Determination, Dynamic Programming Principle, Portfolio Theory, Contagion, Financial Crisis, E-M Algorithm, Dynamic Terms of Trade

JEL Classification: C61, E44, E47, F32, F34, F42, G11

Suggested Citation

Basak, Gopal K. and Das, Pranab Kumar and Rohit, Allena, Foreign Capital Inflow and Financial Crisis in a Dynamic Model (June 11, 2015). Available at SSRN: https://ssrn.com/abstract=2624901 or http://dx.doi.org/10.2139/ssrn.2624901

Gopal K. Basak

Indian Statistical Institute, Kolkata ( email )

203 B.T. Road
Kolkata, West Bengal 700108
India

Pranab Kumar Das (Contact Author)

Centre for Studies in Social Sciences, Calcutta ( email )

R 1, B.P. Township
Kolkata, West Bengal, India
Kolkata, West Bengal 700094
India
913324627252 (Phone)
913324626183 (Fax)

HOME PAGE: http://http//www.cssscal.org/

Allena Rohit

Indian Statistical Institute, Kolkata ( email )

203 B.T. Road
Kolkata, West Bengal 700108
India

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