Analyzing International Capital Flows To Developing And Emerging Market Countries Using A Two-Country Dynamic Stochastic General Equilibrium (Dsge) Model Under Asymmetric Information Structure

In this study, in order to investigate the different forms of capital flow between developing and developed countries in the steady state, a two-country dynamic stochastic general equilibrium (DSGE) model, under asymmetric information, is developed. For simulating countries, the parameters of previous studies are used. The results showed that international risk-sharing can explain the Lucas paradox. In both symmetric and asymmetric information structures, net foreign assets in the forms of stocks in steady state are negative for developing countries. In other words, in the steady state, capital exits from the developing country in the form of bonds and enters these countries in the form of stocks. Besides, net capital inflows in the form of stocks and net outflows of capital in the form of bonds in the present model under asymmetric information are larger than that under symmetric information structure. Furthermore, impulse function results show that the two countries are highly correlated. So, the occurrence of a shock in one country changes the production and consumption of another country. But the impact of the shock on macro variables in the country itself is greater than in another.