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Asset Price And Current Account Dynamics

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  • Kim Kyung-Soo
  • Lee Jaewoo

Abstract

We examine the interaction between asset market and current account in a small open economy. In an overlapping generations economy in which land and 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 adjustment s 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. [E4, F3]

Suggested Citation

  • Kim Kyung-Soo & Lee Jaewoo, 2001. "Asset Price And Current Account Dynamics," International Economic Journal, Taylor & Francis Journals, vol. 15(3), pages 85-108.
    • Handle: RePEc:taf:intecj:v:15:y:2001:i:3:p:85-108
    DOI: 10.1080/10168730100000045
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    References listed on IDEAS

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    1. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "The intertemporal approach to the current account," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 34, pages 1731-1799, Elsevier.
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    6. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1994. "Capital Inflows to Latin America: The 1970s and 1990s," MPRA Paper 8196, University Library of Munich, Germany.
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    Cited by:

    1. Aizenman, Joshua & Jinjarak, Yothin, 2009. "Current account patterns and national real estate markets," Journal of Urban Economics, Elsevier, vol. 66(2), pages 75-89, September.
    2. Charles Leung & N-K. Chen, 2006. "Intrinsic Cycles of Land Price: A Simple Model," Journal of Real Estate Research, Taylor & Francis Journals, vol. 28(3), pages 293-320, January.
    3. Charles Ka Yui Leung & Nan‐Kuang Chen, 2010. "Stock Price Volatility, Negative Autocorrelation And The Consumption–Wealth Ratio: The Case Of Constant Fundamentals," Pacific Economic Review, Wiley Blackwell, vol. 15(2), pages 224-245, May.

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