Texto para discussão 11/2011

The natural rate of interest in a small open economy
Fernando de Holanda Barbosa*

Abstract
The goal of this paper is to show that the natural rate of interest in a small open economy, with access to the world capital markets, is equal to the international real rate of interest. We show this property by using the infinitely-lived overlapping generations model and we use this model to analyze both fixed and flexible exchange rate regimes.

Keywords: small open economy; natural rate of interest; complete and incomplete asset markets

JEL: F41

* FGV

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