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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
Contact details of provider: Web page: http://cema.cufe.edu.cn/

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  1. Gurdip S. Bakshi & Zhiwu Chen, 1996. "The Spirit of Capitalism and Stock-Market Prices," CEMA Working Papers 511, China Economics and Management Academy, Central University of Finance and Economics.
  2. Ceyhun Bora Durdu & Enrique G. Mendoza & Marco E. Terrones, 2007. "Precautionary demand for foreign assets in sudden stop economies: an assessment of the new mercantilism," International Finance Discussion Papers 911, Board of Governors of the Federal Reserve System (U.S.).
  3. Joshua Aizenman & Jaewoo Lee, 2007. "International Reserves: Precautionary Versus Mercantilist Views, Theory and Evidence," Open Economies Review, Springer, vol. 18(2), pages 191-214, April.
  4. Kenneth L. Judd, 1983. "Short-Run Analysis of Fiscal Policy in a Simple Perfect Foresight Model," Discussion Papers 559, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Xiaoyong, Cui & Gong, Liutang, 2006. "Laplace transform methods for linearizing multidimensional systems," Economics Letters, Elsevier, vol. 90(2), pages 176-182, February.
  6. 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.
  7. Pablo García & Claudio Soto, 2004. "Large Hoardings of International Reserves: Are They Worth It?," Working Papers Central Bank of Chile 299, Central Bank of Chile.
  8. Luo, Yulei & Young, Eric R., 2009. "The Wealth Distribution And The Demand For Status," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S1), pages 1-30, May.
  9. Heng-fu Zou, 1991. "The spirit of capitalism and long-run growth," Policy Research Working Paper Series 630, The World Bank.
  10. 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.
  11. Judd, Kenneth L., 1982. "An alternative to steady-state comparisons in perfect foresight models," Economics Letters, Elsevier, vol. 10(1-2), pages 55-59.
  12. Heng-Fu Zou, 1997. "Dynamic analysis in the Viner model of mercantilism," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 637-651, August.
  13. Maurice Obstfeld, 1980. "Macroeconomic Policy, Exchange-Rate Dynamics, and Optimal Asset Accumulation," NBER Working Papers 0599, National Bureau of Economic Research, Inc.
  14. 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.
  15. 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, November.
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