Investment and Current Account Dynamics in an Open Economy Status Seeking Framework

Fisher, Walter H. (February 2002) Investment and Current Account Dynamics in an Open Economy Status Seeking Framework. IHS Economics Series 110

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Abstract: In this paper we analyze the implications of status-preference, modelled as relative wealth, for the current account in a small open economy framework with capital stock dynamics. We demonstrate that the transitional dynamics of the economy is characterized by two distinct speeds of adjustment: a speed of adjustment arising from status-preference and a speed of adjustment arising from installation costs of investment. This structure implies that the current account balance depends on both speeds of adjustment as well as on the long-run equilibrium, which is a function of the degree of status-consciousness. As a consequence, the current account can exhibit non-monotonic behavior in transition to the steady-state equilibrium.;

Item Type: IHS Series
Keywords: 'Current account' 'Status seeking' 'Relative wealth' 'Open economy dynamics'
Classification Codes (e.g. JEL): E21, F41
Status: Published
Date Deposited: 26 Sep 2014 10:37
Last Modified: 05 Apr 2016 13:10
URI: http://irihs.ihs.ac.at/id/eprint/1408

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