Anindya Biswas

Sector Specific Inflow of Foreign Capital, Non-Traded Sector and Implications for Real Exchange Rate

This paper attempts to investigate the impact on factor prices and real exchange rate owing to an inflow of foreign capital only in the exportable sector of the host country. In doing so, we amalgamate Heckscher-Ohlin and Specific Factor models of trade which is popularly known as the H-O nugget. We show that consequent upon an inflow of capital specific to the exportable sector, both the non-traded good production and the return to the factor specific to the non-traded good decrease while the exportable production expands. The effect of such an inflow of foreign capital on the real exchange rate is unambiguous and it increases.

ESTIMATING PREFERENCE PARAMETERS FROM STOCK RETURNS USING SIMULATED METHOD OF MOMENTS

This study proposes a new way of solving standard dynamic problem based on Simulated Method of Moments (SMM) approach. It uses a newly introduced model of stock returns involving latent state variables and the regime-switching fundamentals and estimates three key preference parameters namely the Coefficient of Relative Risk Aversion, the Elasticity of Intertemporal Substitution and the subjective discount factor by suitably applying SMM and without directly using noisy consumption data. The estimates we found here seem to be relatively better than prevalent studies and very close to the true values of the parameters.

Foreign Capital Inflow and Real Exchange Rate Appreciation in Developing Economies: Theory and Empirical Evidence

Foreign direct investment specially targeted to export sector is relatively new phenomenon in the global economy. Such inflow of foreign capital changes the sectoral composition of the economy and it has some influence on the exchange rate of the destination country. In this study, we attempt to provide underlying theoretical and empirical explanations for exchange rate appreciation due to foreign capital inflow. We first use an extended three sector specific factor model to explain analytically why and how an inflow of foreign capital boosts the price of a nontradable good that helps tilting the exchange in rate in favor of the host country and then conduct an empirical analysis based on a panel dataset of twelve prominent developing countries over the time period 1980-2011 to substantiate our theoretical findings. We also strive to look at the possible consequences on factor prices and on sectoral decomposition of a representative economy.