ON SAVINGS AND INVESTMENT DYNAMICS IN A SMALL OPEN-ECONOMY

This paper constructs a stochastic, overlapping-generations, two-country model of savings and investment under conditions of perfect international capital mobility. The focus of the analysis is on the relationship between savings and investment dynamics in a small open economy in response to stochastic variations in domestic and/or foreign production technologies. The model is simulated under alternative specifications of the stochastic distribution governing both technologies. This provides insight into the very complicated nature and rich diversity of possible relationships between savings and investment dynamics. © 1990.