01936cas a2200241 a 4500 AALejournalIMF007768 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451979978 1018-5941 BD-DhAAL BD-DhAAL International Monetary Fund. Stock Prices, Real Exchange Rates, and Optimal Capital Accumulation. Washington, D.C. : International Monetary Fund, 1988. 1 online resource (34 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper analyzes the dynamics of the real exchange rate and the price of equity for a small open economy using an optimizing model in which the process of capital accumulation entails adjustment costs. The analysis demonstrates that along an adjustment path toward long-run equilibrium, appreciation of the real exchange rate will accompany a decline in the market price of equity, whereas depreciation of the real exchange rate will accompany a rise in the price of equity. This relationship results from the requirement that non-traded inputs are used in the investment process. In the short-run, though, the effects on these variables depend critically on whether disturbances originate in the non-traded sector and on whether disturbances are perceived as temporary or permanent. The disturbances considered include changes in fiscal policies as well as changes in the world interest rate. Mode of access: Internet IMF Working Papers; Working Paper ; No. 1988/031 Full text available on IMF http://elibrary.imf.org/view/journals/001/1988/031/001.1988.issue-031-en.xml IMF e-Library