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Foreign Asset Accumulation among Emerging Market Economies: a Case for Coordination

Author

Listed:
  • Hao Jin

    (Indiana University)

  • Hewei Shen

    (University of Oklahoma)

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. (Copyright: Elsevier)

Suggested Citation

  • Hao Jin & Hewei Shen, 2020. "Foreign Asset Accumulation among Emerging Market Economies: a Case for Coordination," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 54-73, January.
    • Handle: RePEc:red:issued:18-222
    DOI: 10.1016/j.red.2019.04.006
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    Cited by:

    1. Javier Bianchi & Guido Lorenzoni, 2021. "The Prudential Use of Capital Controls and Foreign Currency Reserves," NBER Working Papers 29476, National Bureau of Economic Research, Inc.
    2. Liu, Siming & Ma, Chang & Shen, Hewei, 2024. "Sudden stop with local currency debt," Journal of International Economics, Elsevier, vol. 148(C).
    3. Chen, William & Phelan, Gregory, 2021. "International coordination of macroprudential policies with capital flows and financial asymmetries," Journal of Financial Stability, Elsevier, vol. 56(C).

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    More about this item

    Keywords

    Foreign asset accumulation; World interest rate; Policy coordination; Credit constraints; Financial crises;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G01 - Financial Economics - - General - - - Financial Crises

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