Capital flows and real exchange rate fluctuations following Spain's entry into the European Community

Gonzalo Fernandez De Cordoba, Timothy J Kehoe

Research output: Contribution to journalArticle

31 Citations (Scopus)

Abstract

Spain's 1986 entry into the European Community was followed by a dismantling of restrictions on international capital flows. Initial trade deficits and real exchange rate appreciation were followed by trade surpluses and real exchange rate depreciation. This paper analyzes Spain's financial liberalization using a dynamic general equilibrium model with a traded and nontraded good where a capital poor country opens itself to its capital rich neighbors. A carefully calibrated model has trouble accounting for the large changes in relative prices observed given the small changes in quantities. Variants of the model with frictions in factor mobility between sectors fare better. (C) 2000 Elsevier Science B.V. All rights reserved.

Original languageEnglish (US)
Pages (from-to)49-78
Number of pages30
JournalJournal of International Economics
Volume51
Issue number1
DOIs
StatePublished - Jun 1 2000

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Exchange rate fluctuations
Real exchange rate
Capital flows
Spain
Friction
Factor mobility
Trade deficit
Depreciation
Financial liberalization
Trade surplus
International capital flows
Relative prices
Dynamic general equilibrium model

Keywords

  • Adjustment costs
  • International factor movements
  • Nontraded goods
  • Real exchange rate
  • Spain

Cite this

Capital flows and real exchange rate fluctuations following Spain's entry into the European Community. / De Cordoba, Gonzalo Fernandez; Kehoe, Timothy J.

In: Journal of International Economics, Vol. 51, No. 1, 01.06.2000, p. 49-78.

Research output: Contribution to journalArticle

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