Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/71224
Authors: 
Fisher, Walter H.
Year of Publication: 
2001
Series/Report no.: 
Reihe Ökonomie / Economics Series, Institut für Höhere Studien (IHS) 107
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 statuspreference 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 nonmonotonic behavior in transition to the steady state.
Subjects: 
current account
status seeking
relative wealth
open economy dynamics
JEL: 
E21
F41
Document Type: 
Working Paper

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