The Effects of Macroeconomic Policies in a Mercantilist Economy

Wang, Gaowang and Zou, Heng-fu (2011): The Effects of Macroeconomic Policies in a Mercantilist Economy. Forthcoming in: Frontiers on Economics in China

Abstract

By introducing money and foreign exchanges in the Zou (1997) model of mercantilism, the paper shows the effects of macroeconomic policies in mercantilist economies. It is shown that in the long run, consumption and foreign asset accumulation increases as a result of stronger mercantilist sentiments, permanent increases in the consumption tax, increases in the monetary growth rate and purchases of foreign bonds. In the short run, however, macroeconomic disturbances including the mercantilist sentiments, the monetary growth rate, and the consumption tax have negative effects on current consumption and positive effects on current foreign asset accumulation, while purchasing foreign bonds has positive effects on both current consumption and current foreign asset accumulation. The theoretical explorations may provide a theoretical structure for hoarding international reserves and export-led growth strategy utilized by emerging market economies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Foreign Asset Accumulation, Mercantilism, Money, Macroeconomic Policies
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; F - International Economics > F3 - International Finance > F31 - Foreign Exchange; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics

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