ENDOGENOUS GROWTH CYCLES IN AN OPEN-ECONOMY WITH FIXED EXCHANGE-RATES

An open capitalist economy is studied, in which domestic capital expenditures, wages, and exports constitute the only source of demand for output. The money supply has an endogenous component which varies with the trade balance through fluctuations in the stock of international reserves. The liquidity effects of external imbalance give rise to a limit cycle trajectory in situations when strong accelerator effects render the steady state growth path unstable. The effects of export promotion and import substitution policies on the stability of the system are explored.