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Imported Input Price, the Current Account and Macroeconomic Adjustment

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  • Chang Mo Ahn

    (Gyeongsang National University)

Abstract

This paper provides an alternative possibility within an infinite-horizon optimizing framework of saving-investment and the current account by introducing a risk premium to the real cost of borrowing. The individual borrowing country faces an upward sloping supply schedule of foreign funds rather than a horizontal one in this framework. The introduction of a risk premium allows us to analyze the consumption/saving dynamics as well as production/investment dynamics simultaneously. The problem of flat consumption/saving dynamics found in the existing literature can also be avoided and more realistic adjustment pattern of saving/investment and the current account is obtained.

Suggested Citation

  • Chang Mo Ahn, 1996. "Imported Input Price, the Current Account and Macroeconomic Adjustment," Korean Economic Review, Korean Economic Association, vol. 12(1), pages 77-99.
    • Handle: RePEc:kea:keappr:ker-199606-12-1-05
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