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Foreign Asset Accumulation, Macroeconomic Policies and Mercantilism

  • Gaowang Wang

    (Central University of Finance and Economics
    The University of Hong Kong)

  • Heng-fu Zou

    (Central University of Finance and Economics)

The paper studies fiscal policy, monetary policy and the exchange-rate theory in a Viner-Zou monetary model of mercantilism. It is shown that, except for government consumption, permanent increases in the mercantilist sentiments, monetary growth rate, consumption tax, and foreign exchange intervention have positive effects on consumption and foreign asset accumulation in the long run; and, in the short run, except for negative effects on both consumption and foreign asset accumulation of government consumption and positive effects on both consumption and foreign asset accumulation of foreign exchange intervention, other macroeconomic policies, including the mercantilist sentiments, monetary growth rate, and consumption tax, have negative effects on current consumption and positive effects on current foreign asset accumulation. The combination of both long-run and short-run analyses reveals the real dynamic implications of mercantilism.

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Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 461.

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Length: 26 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:cuf:wpaper:461
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  1. Durdu, Ceyhun Bora & Mendoza, Enrique G. & Terrones, Marco E., 2009. "Precautionary demand for foreign assets in Sudden Stop economies: An assessment of the New Mercantilism," Journal of Development Economics, Elsevier, vol. 89(2), pages 194-209, July.
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  8. Heng-fu Zou, 1991. "The spirit of capitalism and long-run growth," Policy Research Working Paper Series 630, The World Bank.
  9. Pablo García & Claudio Soto, 2006. "Large Hoardings of International Reserves: Are They Worth It?," Central Banking, Analysis, and Economic Policies Book Series, in: Ricardo Caballero & César Calderón & Luis Felipe Céspedes & Norman Loayza (Series Editor) & Klaus Sc (ed.), External Vulnerability and Preventive Policies, edition 1, volume 10, chapter 6, pages 171-206 Central Bank of Chile.
  10. Smith, Adam, 1977. "An Inquiry into the Nature and Causes of the Wealth of Nations," University of Chicago Press Economics Books, University of Chicago Press, number 9780226763743 edited by Cannan, Edwin, June.
  11. Congleton, Roger D. & Lee, Sanghack, 2009. "Efficient mercantilism? Revenue-maximizing monopoly policies as Ramsey taxation," European Journal of Political Economy, Elsevier, vol. 25(1), pages 102-114, March.
  12. Ben-Bassat, Avraham & Gottlieb, Daniel, 1992. "Optimal international reserves and sovereign risk," Journal of International Economics, Elsevier, vol. 33(3-4), pages 345-362, November.
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  15. Robson, Arthur J, 1992. "Status, the Distribution of Wealth, Private and Social Attitudes to Risk," Econometrica, Econometric Society, vol. 60(4), pages 837-57, July.
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