CAPITAL ACCUMULATION, FINANCIAL OPENING AND EXTERNAL INDEBTEDNESS: A POST-KEYNESIAN MACRODYNAMIC MODEL WITH FLOATING EXCHANGE RATE AND CAPITAL MOBILITY

Abstract

The objective of this article is to present a post-keynesian macrodynamic model in order to analyze the effects of the liberalization of capital account over the economic performance of developing economies. In this setting, comparative static analysis show that an increase in the level of external debt can have positive effects for the economy in the short-run, since it induces an increase in the level of capacity utilization and the growth rate of capital stock. However, long-run dynamics show that, under certain conditions, the access to international capital markets can generate explosive paths for the economic system, mainly if monetary policy is conducted under a Inflation Targeting Regime. Besides that, it was show that a reduction in the target rate of inflation can generate a permanent increase in the level of interest rate as well as an increase in the level of external debt, which will increase the external fragility of the economy at hand.