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Status Preference, Wealth and Dynamics in the Open Economy

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  • Walter H. Fisher
Abstract
. The implications of status preference in a simple open economy model are investigated in this paper. The open economy is modeled as a continuum of identical representative agents who have preferences over consumption and status. In the paper status is identified as relative wealth, which takes the form of relative holdings international financial assets. A symmetric macroeconomic equilibrium is derived in which status is the source of transitional dynamics for domestic consumption and the current account balance. This result illustrates another way to combine transitional dynamics with interior equilibria in the small open economy Ramsey model with perfect capital mobility. We also show that status preference plays a critical role in influencing the open economy's adjustment to government expenditure and world interest rate shocks.

Suggested Citation

  • Walter H. Fisher, 2004. "Status Preference, Wealth and Dynamics in the Open Economy," German Economic Review, Verein für Socialpolitik, vol. 5(3), pages 335-355, August.
    • Handle: RePEc:bla:germec:v:5:y:2004:i:3:p:335-355
    DOI: 10.1111/j.1465-6485.2004.00112.x
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    1. Gene M. Grossman (ed.), 1996. "Economic Growth," Books, Edward Elgar Publishing, volume 0, number 553.
    2. Fisher, Walter H., 1995. "An optimizing analysis of the effects of world interest disturbances on the open economy term structure of interest rates," Journal of International Money and Finance, Elsevier, vol. 14(1), pages 105-126, February.
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    10. Sen, Partha & Turnovsky, Stephen J, 1989. "Tariffs, Capital Accumulation, and the Current Account in a Small Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 811-831, November.
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    17. Brock, Philip L., 1988. "Investment, the current account, and the relative price of non-traded goods in a small open economy," Journal of International Economics, Elsevier, vol. 24(3-4), pages 235-253, May.
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    19. repec:bla:reviec:v:8:y:2000:i:2:p:261-74 is not listed on IDEAS
    20. Fisher, Walter H. & Hof, Franz X., 2005. "Status seeking in the small open economy," Journal of Macroeconomics, Elsevier, vol. 27(2), pages 209-232, June.
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    Cited by:

    1. Walter Fisher & F. Hof, 2008. "The quest for status and endogenous labor supply: the relative wealth framework," Journal of Economics, Springer, vol. 93(2), pages 109-144, March.
    2. Walter H. Fisher, 2004. "Durable Consumption As A Status Good: A Study Of Neoclassical Cases," Computing in Economics and Finance 2004 96, Society for Computational Economics.
    3. Ryu‐ichiro Murota & Yoshiyasu Ono, 2011. "Growth, Stagnation And Status Preference," Metroeconomica, Wiley Blackwell, vol. 62(1), pages 122-149, February.
    4. Fisher, Walter H. & Heijdra, Ben J., 2009. "Keeping up with the ageing Joneses," Journal of Economic Dynamics and Control, Elsevier, vol. 33(1), pages 53-64, January.
    5. Cecilia García-Peñalosa & Stephen Turnovsky, 2008. "Consumption externalities: a representative consumer model when agents are heterogeneous," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(3), pages 439-467, December.
    6. Wirl Franz & Novak Andreas J. & Hof Franz X., 2008. "Happiness due to Consumption and its Increases, Wealth and Status," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 12(4), pages 1-34, December.
    7. Liu, Wen-Fang & Turnovsky, Stephen J., 2005. "Consumption externalities, production externalities, and long-run macroeconomic efficiency," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1097-1129, June.
    8. Fisher, Walter H. & Hof, Franz X., 2005. "Status seeking in the small open economy," Journal of Macroeconomics, Elsevier, vol. 27(2), pages 209-232, June.
    9. Walter H. Fisher, 2008. "Imports, Status Preference, and Foreign Borrowing," Review of Development Economics, Wiley Blackwell, vol. 12(1), pages 1-20, February.
    10. Walter H. Fisher, 2005. "Current Account Dynamics in a Small Open‐Economy Model of Status Seeking," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 262-282, May.
    11. Liutang Gong & Heng-fu Zou, 1998. "Fiscal Policies in a Finite Horizon Model with the Spirit of Capitalism," CEMA Working Papers 102, China Economics and Management Academy, Central University of Finance and Economics.
    12. Duernecker, Georg, 2007. "Growth Effects of Consumption Jealousy in a Two-Sector Model," Economics Series 201, Institute for Advanced Studies.

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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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