Foreign Asset Accumulation Among Emerging Market Economies: A Case for Coordination

Review of Economic Dynamics, Vol. 35, No. Jan, 2020

CAEPR Working Paper No. 2016-001

45 Pages Posted: 2 Mar 2016 Last revised: 26 Jan 2020

See all articles by Hao Jin

Hao Jin

Wang Yanan Institute for Studies in Economics (WISE) and School of Economics, Xiamen University

Hewei Shen

University of Oklahoma - Department of Economics

Date Written: April 1, 2019

Abstract

We develop a two-sector, core-periphery country general equilibrium framework with endogenous financial crises to study foreign asset accumulation coordination among emerging market economies. Consistent with the policy prescription described by Bianchi(2011), we show that a national planner in each peripheral country prefers a higher asset position than the decentralized agents but may reduce welfare. A coordinator for all peripheral countries, who considers the general equilibrium effect of aggregate peripheral savings on the world interest rate, prefers a different asset position than the national planner. When we calibrate our model to a group of emerging Asian economies, the quantitative analysis shows that in the absence of coordination, national regulation leads to a 3.7% higher average net foreign asset position and a welfare loss relative to the laissez-faire. In contrast, the coordinated level of net foreign assets is 59% of the uncoordinated level and results in a sizable welfare gain.

Keywords: Foreign Asset Accumulation, World Interest Rate, Policy Coordination, Credit Constraints, Financial Crises

JEL Classification: D62, E43, F32, F42, G01

Suggested Citation

Jin, Hao and Shen, Hewei, Foreign Asset Accumulation Among Emerging Market Economies: A Case for Coordination (April 1, 2019). Review of Economic Dynamics, Vol. 35, No. Jan, 2020, CAEPR Working Paper No. 2016-001, Available at SSRN: https://ssrn.com/abstract=2739740 or http://dx.doi.org/10.2139/ssrn.2739740

Hao Jin (Contact Author)

Wang Yanan Institute for Studies in Economics (WISE) and School of Economics, Xiamen University ( email )

Economics Building D215
Xiamen University
Xiamen, Fujian 361005
China
86-592-2180353 (Phone)
86-592-2187708 (Fax)

HOME PAGE: http://haojin.weebly.com/

Hewei Shen

University of Oklahoma - Department of Economics ( email )

729 Elm Avenue
Norman, OK 73019-2103
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
233
Abstract Views
1,283
rank
157,859
PlumX Metrics