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

Hao Jin () and Hewei Shen

No 2016-001, CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington

Abstract: We develop a two-sector, core-periphery country general equilibrium framework with endogenous financial crises and argue for coordination on foreign asset accumulations among emerging market economies (EMEs). We show that a national planner in each peripheral country prefers a higher foreign asset position than the decentralized agents. This is consistent with the policy prescription derived in Bianchi(2011). However, a coordinator for all peripheral countries, who internalizes the effect of aggregate peripheral savings on the world interest rate, prefers a lower foreign asset position relative to the national planner. We find that uncoordinated foreign asset accumulations may even be inferior to decentralized equilibrium once we allow for a variable world interest rate. Our quantitative analysis shows that the coordinated level of net foreign assets for the peripheral countries is only 56% that of the uncoordinated level.

Keywords: Foreign Asset Accumulation; World Interest Rate; Policy Coordination; Credit Constraints; Financial Crises (search for similar items in EconPapers)
JEL-codes: D62 E43 F32 F42 G01 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2016-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Foreign Asset Accumulation among Emerging Market Economies: a Case for Coordination (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:inu:caeprp:2016001

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