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Macroeconomic Policies and Foreign Asset Accumulation in a Finite-Horizon Model

Author

Listed:
  • Xiaoyong Cui

    (CEMA, Central University of Finance and Economics)

  • Liutang Gong

    (Guanghua School of Management, Peking University)

  • Ziguan Zhuang

    (Economics and Management School, Wuhan University)

Abstract

This paper considers foreign asset holdings and macroeconomic policies in a finite-horizon model with real balances and foreign asset holdings in a small open economy. Both the long- and short-run effects of these macroeconomic policies on the economy are reexamined. The main results stand in striking contrast to those of Obstfeld (1981), who used an endogenous time preference. (1) Foreign exchange intervention leads to more foreign asset holdings and more consumption in the long run. However, it affects foreign asset accumulation ambiguously. (2) Inflation results in more foreign asset accumulation and consumption, but the effect of inflation on real balance holdings is ambiguous. (3) Government spending affects foreign asset accumulation ambiguously, and it always reduces real balances and crowds out private consumption.

Suggested Citation

  • Xiaoyong Cui & Liutang Gong & Ziguan Zhuang, 2008. "Macroeconomic Policies and Foreign Asset Accumulation in a Finite-Horizon Model," Annals of Economics and Finance, Society for AEF, vol. 9(2), pages 293-313, November.
    • Handle: RePEc:cuf:journl:y:2008:v:9:i:2:p:293-313
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    References listed on IDEAS

    as
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    5. Maurice Obstfeld, 1982. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," The Quarterly Journal of Economics, Oxford University Press, vol. 97(2), pages 251-270.
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    More about this item

    Keywords

    Foreign asset; Finite-horizon model; Macroeconomic policies;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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