Mercantilism, Foreign Asset Accumulation and Macroeconomic Policy

Gaowang Wang and Heng-Fu Zou ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a simple mercantilism model for a small open economy and examines the real effects of macroeconomic policies. In this setting, the saddle-point stability of the model with wealth effects hinges on an interesting "relative smoothness condition" for foreign asset accumulation. And comparative static analysis shows that an increase of monetary growth rate and a central-bank purchase of foreign exchange have positive real effects on the economy. In contrast, an increase of government expenditure always has negative effects on the economy. Moreover, the stronger of the mercantilist sentiments, the more consumption, real money balance holdings and foreign asset accumulation in the long run. These conclusions are very different from those ridiculous ones of Obstfeld's paper (1981).

Keywords: Mercantilism; Foreign Asset Accumulation; Relative Smoothness Condition (search for similar items in EconPapers)
JEL-codes: E52 E58 E63 F41 (search for similar items in EconPapers)
Date: 2011-10-30
New Economics Papers: this item is included in nep-mac
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