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Current Account Dynamics in a Small Open Economy Model of Status Seeking

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Author Info
Fisher, Walter H. (Department of Economics and Finance, Institute for Advanced Studies)

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Abstract

In this paper we will use a status-preference framework, together with a standard cost of adjustment investment function, to study the dynamics of the small open economy current account balance. We demonstrate that the transitional dynamics of the economy is characterized by two 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. As a consequence, the current account can exhibit non-monotonic behavior in transition to the steady state.

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File URL: http://www.ihs.ac.at/publications/eco/es-107.pdf
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File Function: First version, 2001
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Publisher Info
Paper provided by Institute for Advanced Studies in its series Economics Series with number 107.

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Length: 25 pages
Date of creation: Oct 2001
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Handle: RePEc:ihs:ihsesp:107

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Related research
Keywords: Current account; Status seeking; Relative wealth; Open economy dynamics;

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Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

References listed on IDEAS
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  1. Layard, Richard, 1980. "Human Satisfactions and Public Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 737-50, December. [Downloadable!] (restricted)
  2. Lars Ljungqvist & Harald Uhlig, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 90(3), pages 356-366, June. [Downloadable!] (restricted)
  3. Gali, Jordi, 1994. "Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice, and Asset Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 1-8, February. [Downloadable!] (restricted)
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  4. Sen, P. & Turnovsky, S.J., 1990. "Investment Tax Credit In An Open Economy," Working Papers 90-09, University of Washington, Department of Economics.
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  5. Boskin, Michael J & Sheshinski, Eytan, 1978. "Optimal Redistributive Taxation when Individual Welfare Depends upon Relative Income," The Quarterly Journal of Economics, MIT Press, vol. 92(4), pages 589-601, November. [Downloadable!] (restricted)
  6. Futagami, Koichi & Shibata, Akihisa, 1998. "Keeping one step ahead of the Joneses: Status, the distribution of wealth, and long run growth," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 109-126, July. [Downloadable!] (restricted)
  7. Walter Fisher & Franz Hof, 2000. "Relative consumption, economic growth, and taxation," Journal of Economics, Springer, vol. 72(3), pages 241-262, October. [Downloadable!] (restricted)
  8. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, vol. 54(1), pages 87-92, January. [Downloadable!] (restricted)
  9. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201119, January.
  10. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-16, March. [Downloadable!] (restricted)
  11. Sen, Partha & Turnovsky, Stephen J., 1989. "Deterioration of the terms of trade and capital accumulation: A re-examination of the Laursen-Metzler effect," Journal of International Economics, Elsevier, vol. 26(3-4), pages 227-250, May. [Downloadable!] (restricted)
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  12. Michael Rauscher, 1997. "Protestant Ethic, Status Seeking, and Economic Growth," Thuenen-Series of Applied Economic Theory 09, University of Rostock, Institute of Economics, Germany. [Downloadable!]
  13. Harbaugh, Richmond, 1996. "Falling behind the Joneses: relative consumption and the growth-savings paradox," Economics Letters, Elsevier, vol. 53(3), pages 297-304, December. [Downloadable!] (restricted)
  14. Fisher, Walter H. & Hof, Franz X., 2001. "Status Seeking in the Small Open Economy," Economics Series 106, Institute for Advanced Studies. [Downloadable!]
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  15. Sen, Partha & Turnovsky, Stephen J, 1989. "Tariffs, Capital Accumulation, and the Current Account in a Small Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 811-31, November. [Downloadable!] (restricted)
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  16. Fisher, Walter H., 2001. "Status Preference, Wealth, and Dynamics in the Open Economy," Economics Series 99, Institute for Advanced Studies. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Walter H. Fisher, 2004. "Durable Consumption As A Status Good: A Study Of Neoclassical Cases," Computing in Economics and Finance 2004 96, Society for Computational Economics. [Downloadable!]
  2. Olivier, CARDI, 2005. "Another View of the J-Curve," Discussion Papers (ECON - Département des Sciences Economiques) 2005029, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
    Other versions:
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