Persistent Imbalances in Open Economies

Reconsidering Equilibrium via Asset‑Dynamics

Abstract

Persistent macroeconomic imbalances, long‑run deflation, and entrenched inequality are often interpreted as outcomes of market incompleteness or failures. This paper offers an alternative perspective by developing a dynamic equilibrium framework for open economies that incorporates asset‑side mechanisms. Within this framework, and by re‑examining the transversality condition (TVC) as an asset‑valuation criterion, such persistent imbalances can emerge as structural outcomes of optimal behavior rather than anomalies. The model yields the relationship:Rt-ρ=n+Da-U(θa)/Uc; This relationship shows that the gap between the asset return (Rt) and time preference (ρ) is sustained by the combined effects of capital diffusion (Da), population growth (n) and preference terms (U(θa)/Uc). This reinterpretation explains how steady states with persistent differences in asset levels and external balances can coexist, and frames equilibrium as a dynamic configuration shaped by interdependence across economies and agents, beyond the traditional price‑clearing mechanism. The results align theory with observed realities and offer tools for policy design, including structural selection of the steady state, policy control of capital flows, and asset‑dynamics‑based policy reconstruction.