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World Interest Shocks, Capital, and the Current Account

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  • Walter H. Fisher
  • Dek Terrell

Abstract

Macroeconomic performance in many developing countries is influenced by international credit conditions. This paper considers a developing economy that faces an upward‐sloping supply function of debt. It analyzes how a particular foreign shock, a world interest shock, influences such key macroeconomic variables as output, investment, the current account, and the terms of trade in both short‐run and steady‐state equilibrium. An intertemporal optimizing model is used to study these issues. This approach permits characterization of the intertemporal adjustment of the indebted economy, and shows that a world interest shock lowers overall economic welfare.

Suggested Citation

  • Walter H. Fisher & Dek Terrell, 2000. "World Interest Shocks, Capital, and the Current Account," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 261-274, May.
    • Handle: RePEc:bla:reviec:v:8:y:2000:i:2:p:261-274
    DOI: 10.1111/1467-9396.00220
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    Cited by:

    1. Cardi, Olivier, 2007. "Another View Of The J-Curve," Macroeconomic Dynamics, Cambridge University Press, vol. 11(2), pages 153-174, April.
    2. CARDI, Oliver & BERTINELLI, Luisito, 2004. "A formal model of krugman’s intuition on the J-curve," LIDAM Discussion Papers CORE 2004043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Fisher, Walter H. & Hof, Franz X., 2005. "Status seeking in the small open economy," Journal of Macroeconomics, Elsevier, vol. 27(2), pages 209-232, June.
    4. Michał Konopczyński, 2022. "Optimal Fiscal Policy in a Small Open Economy: Insights from the Growth Model with Human Capital and Public Debt," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 14(2), pages 131-160, June.
    5. Fisher Walter H., 2004. "Status Preference, Wealth and Dynamics in the Open Economy," German Economic Review, De Gruyter, vol. 5(3), pages 335-355, August.
    6. 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.
    7. Michał Konopczyński, 2018. "Optimal fiscal policy in an emerging economy with credit constraints: theory and application for Poland," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 10(3), pages 169-231, September.

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