Financial dualism in a cash-in-advance economy

Article Abstract:

The intertemporal asset pricing model is used to evaluate the case of financial repression for developing countries. The model assumes cash-in-advance limits, sets specific transactions-based microfoundations for money demand, establishes interest costs as a vital factor in production costs. The model is analyzed both with bank and curb market presence and without the presence of curb markets. Financial liberalization with a curb market has no impact on marginal interest rate, indicating a similarly minimal impact on output. However, the model shows that in the absence of a black market, capital availability is improved, increasing employment and output.

Models, Financial markets, Black market

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Permanent income and credit rationing in the open economy multiplier/accelerator model: an exercise for the developing countries case

Article Abstract:

Consumption patterns that hew more closely to the Keynesian model than to the permanent income hypothesis could make government actions destabilizing. This was gleaned from an examination of a multiplier/accelerator macroeconomic model which integrates the permanent income hypothesis in private consumption, financial constraints in private investment and a government that attempts fiscal growth with tight money, a common macroeconomic framework for developing countries.

Analysis, Consumption (Economics), Permanent income theory

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