|
|
|
|
Title: |
Asset Price and Current Account Dynamics |
| Author: |
Kim, Kyung-Soo; Lee, Jaewoo |
| Author
Affiliation: |
Sungkyunkwan U;
U CA, Irvine |
| Source: |
International Economic Journal, Autumn 2001, v. 15, no. 3, pp. 85-108 |
|
Publication Date: |
Autumn 2001 |
|
Abstract: |
We examine the interaction between asset
market and current account in a small open economy. In an overlapping
generations economy in which land money are available assets, the
interaction between the land price and current account dynamics is shown
to generate a plausible (asset price) specie-flow mechanism. We apply
them to a number of issues. Domestic credit policy is neutral in the
long run: one unit of foreign reserve increase offsets one unit of
credit reduction. Next, the association between the endowment of land
and foreign asset accumulation depends on parameters of the model.
Finally, we examine the dynamic adjustments following a once-and-for-all
capital inflow. When the adjustment involves running current account
deficit, the recipient country's foreign reserve position is permanently
lowered. Furthermore, the steady state level of national wealth is
permanently reduced. |
|
