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The real dollar-yen exchange rate, asymmetries in trade flows and the current account in a perfect-foresight model for developing East Asia

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Author Info
Peter Stockman
Abstract

This paper explores permanent, unanticipated shocks in the yen-dollar exchange rate in a perfect-foresight, infinite-horizon, representative-agent model for an open, semismall economy that produces a single good, imports intermediate inputs and investment goods from Japan and competes with Japan in external markets. Therefore, the model captures some of the features of the developing countries of East Asia. External debt is constrained by a country-risk premium that depends on the level of external debt. The capital stock is maintained and incremented by an endogenous mixture of Japanese and home goods. An appreciation of the dollar against the yen is neutral for external indebtedness and the trade account in the long run, but raises the capital stock, consumption and hence welfare in the long run; the home currency depreciates against the dollar but appreciates against the yen. Whether a cycle of current account surpluses followed by current account deficits or vice versa is generated depends on the initial response of the shadow value of external debt.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Journal of International Trade & Economic Development.

Volume (Year): 9 (2000)
Issue (Month): 1 (March)
Pages: 19-36
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Handle: RePEc:taf:jitecd:v:9:y:2000:i:1:p:19-36

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Related research
Keywords: Current Account; Real Exchange Rate; Intermediate Imports; Representative Agent; Capital; Formation; East Asia;

References listed on IDEAS
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  3. Bhandari, Jagdeep S. & Ul Haque, Nadeem & Turnovsky, Stephen J., 1989. "Growth, debt, and sovereign risk in a small, open economy," Policy Research Working Paper Series 260, The World Bank. [Downloadable!]
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  8. Turnovsky, S.J. & Sen, P., 1990. "Fiscal Policy, Capital Accumulation, And Debt In An Open Economy," Discussion Papers in Economics at the University of Washington 90-18, Department of Economics at the University of Washington.
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  9. Brock, Philip L., 1991. "Export instability and the economic performance of developing countries," Journal of Economic Dynamics and Control, Elsevier, vol. 15(1), pages 129-147. [Downloadable!] (restricted)
  10. Sergio Rebelo & Carlos A. Vegh, 1995. "Real Effects of Exchange-Rate-Based Stabilization: An Analysis of Competing Theories," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 125-188 National Bureau of Economic Research, Inc. [Downloadable!]
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  11. Zimmermann, Christian, 1997. "International real business cycles among heterogeneous countries," European Economic Review, Elsevier, vol. 41(2), pages 319-356, February. [Downloadable!] (restricted)
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  13. Butlin, M. W., 1985. "Imported inputs in an optimising model of a small open economy," Journal of International Economics, Elsevier, vol. 18(1-2), pages 101-121, February. [Downloadable!] (restricted)
  14. Turnovsky, S.J., 1990. "Tariffs And Sectoral Adjustments In An Open Economy," Discussion Papers in Economics at the University of Washington 90-13, Department of Economics at the University of Washington.
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  15. Cardia, Emanuela, 1991. "The dynamics of a small open economy in response to monetary, fiscal, and productivity shocks," Journal of Monetary Economics, Elsevier, vol. 28(3), pages 411-434, December. [Downloadable!] (restricted)
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  1. Theo Panagiotidis & Mark J Holmes, 2005. "Sustainability and Asymmetric Adjustment: Some New Evidence Concerning Behaviour of the US Current Account," Money Macro and Finance (MMF) Research Group Conference 2005 29, Money Macro and Finance Research Group. [Downloadable!]
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