The standard argument for abstracting from capital accumulation in sticky-price macro models is based on their short …-run focus: over this horizon, capital does not move much. This argument is more problematic in the context of real exchange rate … (RER) dynamics, which are very persistent. In this paper we study RER dynamics in sticky-price models with capital …

issues not only money, but interest-bearing bonds; these bonds compete with capital in private portfolios. When the … display damped endogenous fluctuations, and development trap phenomena are common. Across different steady states, low capital … system. Also, increases in the steady state inflation rate can easily reduce the steady state capital stock. …