Optimal Current Account and the External Debt for Korea

Abstract

The paper investigates the optimal path of Korea's current account and external debt by building a dynamic model of consumption and Investment. It determines the Investment and growth on the basis of Tobin's q theory for a small open economy with foreign debt and examines the relationship among the market value of capital, the marginal product of capital, and the Interest rate In Korea. It also discusses the problems in determining the optimal consumption under dynamic solvency constraints.