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Status Preference, Wealth, and Dynamics in the Open Economy

  • Fisher, Walter H.

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

The implications of status preference in a simple open economy model will be investigated in this paper. The open economy is modeled as a continuum of identical representative agents who have preferences over consumption and status. In the paper status is identified as relative wealth, which takes the form of relative holdings international financial assets. A symmetric macroeconomic equilibrium is derived in which status is the source of transitional dynamics for consumption and the current account balance. This result illustrates another way to generate transitional dynamics in the small open economy model, which, as is well-known, does not have well-defined dynamics under perfect capital mobility. The role of status plays in influencing the open economy's adjustment to various macroeconomic shocks is also considered.

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File URL: http://www.ihs.ac.at/publications/eco/es-99.pdf
File Function: First version, 2001
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Paper provided by Institute for Advanced Studies in its series Economics Series with number 99.

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Length: 25 pages
Date of creation: Apr 2001
Date of revision:
Handle: RePEc:ihs:ihsesp:99
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  1. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201119, June.
  2. Futagami, Koichi & Shibata, Akihisa, 1998. "Keeping one step ahead of the Joneses: Status, the distribution of wealth, and long run growth," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 109-126, July.
  3. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, vol. 54(1), pages 87-92, January.
  4. Sen, Partha & Turnovsky, Stephen J, 1989. "Tariffs, Capital Accumulation, and the Current Account in a Small Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 811-31, November.
  5. Davide Fiaschi, 1996. "Fiscal policies and growth," Working Papers 261, Dipartimento Scienze Economiche, Universita' di Bologna.
  6. Fisher, Walter H. & Hof, Franz X., 2001. "Status Seeking in the Small Open Economy," Economics Series 106, Institute for Advanced Studies.
  7. Jacob Frenkel & Assaf Razin, 1996. "Fiscal Policies and Growth in the World Economy," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262561042, June.
  8. Fisher, Walter H & Terrell, Dek, 2000. "World Interest Shocks, Capital, and the Current Account," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 261-74, May.
  9. Maurice Obstfeld, 1989. "Intertemporal Dependence, Impatience, and Dynamics," NBER Working Papers 3028, National Bureau of Economic Research, Inc.
  10. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1092-1125, December.
  11. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
  12. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, June.
  13. Walter Fisher & Franz Hof, 2000. "Relative consumption, economic growth, and taxation," Journal of Economics, Springer, vol. 72(3), pages 241-262, October.
  14. Fisher, Walter H., 1995. "An optimizing analysis of the effects of world interest disturbances on the open economy term structure of interest rates," Journal of International Money and Finance, Elsevier, vol. 14(1), pages 105-126, February.
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