New model reveals how capital market frictions shape economy evolution.
The article introduces a new way to understand how capital moves between countries, showing that interest rates don't always equalize instantly. By looking at how borrowing costs change based on how much money is borrowed, the researchers found that this can lead to gradual changes in capital stock, consumption, prices, and interest rates. This model helps explain how economies grow and change over time, by combining different factors like household preferences and production technology.