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

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  • Fisher, Walter H.

    (Department of Economics and Finance, Institute for Advanced Studies)

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.

Suggested Citation

  • Fisher, Walter H., 2001. "Current Account Dynamics in a Small Open Economy Model of Status Seeking," Economics Series 107, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsesp:107
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    References listed on IDEAS

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    Cited by:

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    2. Cardi, Olivier, 2007. "Another View Of The J-Curve," Macroeconomic Dynamics, Cambridge University Press, vol. 11(2), pages 153-174, April.
    3. Kivanç Halil Ariç & Siok Kun Sek & Miguel Rocha de Sousa, 2018. "Current Account Balance in Emerging Asia," CEFAGE-UE Working Papers 2018_02, University of Evora, CEFAGE-UE (Portugal).
    4. Ryu‐ichiro Murota & Yoshiyasu Ono, 2011. "Growth, Stagnation And Status Preference," Metroeconomica, Wiley Blackwell, vol. 62(1), pages 122-149, February.
    5. 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.
    6. Simone Valente, 2009. "International status seeking, trade, and growth leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 554-589, May.
    7. Valente, Simone, 2006. "Trade, Envy and Growth: International Status Seeking in a Two-Country World," MPRA Paper 1095, University Library of Munich, Germany.

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    More about this item

    Keywords

    Current account; Status seeking; Relative wealth; Open economy dynamics;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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