Keyu Jin

• Globalization, Demographic Heterogeneity and Specialization: Implications for Global Asset Prices and Capital Flows
  July 2007
  
  Abstract: Rich countries' rising current account deficit may be a consequence of their becoming more capital intensive. This paper shows how trade and financial integration among developing and developed economies and their heterogenous demographic trends affects global capital flows and asset prices through their impact on specialization patterns. It develops a stochastic two-country general equilibrium OLG model that combines a factor-proportions paradigm of trade with perfect financial asset trade, in which convex adjustment costs endogenously determine the price of capital. Allowing for the interplay between trade and financial flows in mediating demographic and globalization shocks leads to markedly different results from those of the conventional literature in which the trade channel has been invariably shut down: integration of labor-abundant developing countries can induce capital flows from poor to rich countries; demographic shocks can now be transmitted positively rather than negatively across countries. Both forces will cause the counterpart aging, rich world will to see a surge in asset prices, investment, and current account deficit as it becomes more specialized in capital-intensive industries. This leads to the conjecture that the young and fast growing developing countries can potentially become large stake holders of global assets and emerge as a solution to the "age wave crisis" in industrialized countries.

• Composition and Growth Effects of the Current Account: A Synthesized View
  (with Kai Guo) (Review requested by Journal of International Economics) March 2007
  
  Abstract: This paper analyzes a useful accounting framework that breaks down the current account to two components: a composition effect and a growth effect. We show that past empirical evidence, which strongly supports the growth-effect as the main driver of current account dynamics, is misconceived. The remarkable empirical success of the growth effect is driven by the dominance of the cross-sectional variation, which, under conditions met by the data, is generated by an accounting equation. In contrast to previous findings that the portfolio share of net foreign assets to total assets is constant in a country, both our theoretical and empirical results support a highly persistent process or a unit root process, with some countries displaying a trend. Finally, we reestablish the composition effect as the quantitatively dominant driving force of current account dynamics in the past data.

• GROWTH DYNAMICS AND POLICY ANALYSIS WITH THE BECKER-MULLIGAN PREFERENCES (March 2004)
  
  Abstract: This paper develops a model of growth based on the Becker-Mulligan preferences for an economy peopled by infinitely lived, utility-maximizing agents. We extend the Becker-Mulligan model of endogenous preferences from a two-period problem to a continuous-time period problem. We show that the dynamics of optimal growth can display a unique saddle-path equilibrium or multiple saddle-path equilibrium along with cycles for empirically plausible parameters. Long-run equilibrium is now dependent upon initial conditions. In this setting, government actions have real effects on the economy. Specifically, an increase in government expenditure unambiguously reduces the long-run capital stock. The model shows less crowding out of consumption consistent with the Keynesian view. The superneutrality result in the standard Sidrauski model is overturned in our setting. The model also implies smoother consumption variation in the event of shocks. The magnitude of consumption changes due to government spending is quantitatively shown through numerical methods.

Copyright 2005 by the President and Fellows of Harvard College