Exploring The Role of Limited Commitment Constraints in Argentina's "Missing Capital" / Marek Kapička, Finn Kydland, Carlos Zarazaga.

Format:

Book

Author/Creator:

Kapička, Marek.

Contributor:

National Bureau of Economic Research.

Kydland, Finn.

Zarazaga, Carlos.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26359.

NBER working paper series no. w26359

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

We study why capital accumulation in Argentina was slow in the 1990s and 2000s, despite high productivity growth and low international interest rates. We show that limited commitment constraints introduce two mechanisms. First, the response of investment to a total factor productivity increase is muted and short-lived, while the response to a decrease is large and persistent. Second, unlike in a first-best economy, low international interest rates may reduce capital accumulation, because they increase the relevance of future commitment constraints. A quantitative implementation of the model economy shows that the two mechanisms are quantitatively important for the dynamics of Argentina's capital accumulation. The model accounts for between 50% and 85% of the capital missing from Argentina in the two decades mentioned above, relative to what it would be in the absence of the limited commitment frictions.

Notes:

Print version record

October 2019.