Decreasing and increasing marginal impatience and the terms of trade in an interdependent world economy
AbstractUsing a two-good, two-country model, we examine macroeconomic adjustment by allowing for decreasing and increasing marginal impatience (DMI and IMI). In the reference case where both countries have IMI, a negative output shock in one country lowers the interest rate and both countries' welfare levels in steady state, whereas, when either one country has DMI, the negative income shock raises the interest rate, thereby benefiting the IMI country and harming the DMI one in steady state. In a country either with IMI or DMI, the Harberger–Laursen–Metzler effect takes place if negative ‘welfare-supporting’ effects dominate positive ‘income-compensating’ effects.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 36 (2012)
Issue (Month): 10 ()
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Decreasing (increasing) marginal impatience; Two-country economy; Terms of trade; Current account;
Find related papers by JEL classification:
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- E00 - Macroeconomics and Monetary Economics - - General - - - General
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