Current Account Dynamics in a Small Open-Economy Model of Status Seeking
AbstractIn this paper we analyze the implications of status preference, modeled 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 are 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 nonmonotonic behavior in transition to the steady-state equilibrium subsequent to a productivity disturbance. Copyright Blackwell Publishing Ltd 2005..
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 13 (2005)
Issue (Month): 2 (05)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576
Other versions of this item:
- Fisher, Walter H., 2001. "Current Account Dynamics in a Small Open Economy Model of Status Seeking," Economics Series 107, Institute for Advanced Studies.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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