Growth and financial liberalization under capital collateral constraints: The striking case of the stochastic AK model with CARA preferences

Raouf Boucekkine (1) , Giorgio Fabbri (2) , Patrick A. Pintus (1)

1 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille
2 EPEE - Centre d'Etudes des Politiques Economiques

We consider a small-open, collateral-constrained AK economy. We show that the combination of CARA preferences and uncertainty on capital inflows generates long-term growth while the deterministic counterpart does not: long-term growth is entirely driven by precautionary savings, and the asymptotic growth rate of the expected capital stock is increasing in both the risk magnitude and the Arrow–Pratt absolute risk aversion parameters.

Keywords: CARA preferences; CARA preferences; Collateral constraints; Financial liberalization; Growth; Precautionary savings

Domains: Humanities and Social Sciences; Humanities and Social Sciences; Economics and Finance

Raouf Boucekkine, Giorgio Fabbri, Patrick A. Pintus. Growth and financial liberalization under capital collateral constraints: The striking case of the stochastic AK model with CARA preferences. Economics Letters, 2014, 122 (2), pp.303--307. ⟨10.1016/j.econlet.2013.12.009⟩. ⟨hal-01463906⟩