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Decreasing and increasing marginal impatience and the terms of trade in an interdependent world economy

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  • Hirose, Ken-Ichi
  • Ikeda, Shinsuke

Abstract

Using 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 Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 36 (2012)
Issue (Month): 10 ()
Pages: 1551-1565

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Handle: RePEc:eee:dyncon:v:36:y:2012:i:10:p:1551-1565

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Decreasing (increasing) marginal impatience; Two-country economy; Terms of trade; Current account;

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References

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  1. Obstfeld, Maurice, 1982. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 97(2), pages 251-70, May.
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  4. Das, Mausumi, 2003. "Optimal growth with decreasing marginal impatience," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 27(10), pages 1881-1898, August.
  5. Ken-ichi Hirose & Shinsuke Ikeda, 2012. "Decreasing marginal impatience in a two-country world economy," Journal of Economics, Springer, vol. 105(3), pages 247-262, April.
  6. Devereux, Michael B. & Shi, Shouyong, 1991. "Capital accumulation and the current account in a two-country model," Journal of International Economics, Elsevier, vol. 30(1-2), pages 1-25, February.
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  10. Shinsuke Ikeda, 2006. "Luxury And Wealth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 495-526, 05.
  11. Epstein, Larry G, 1987. "The Global Stability of Efficient Intertemporal Allocations," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 329-55, March.
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  15. Shinsuke Ikeda, 2001. "Weakly non-separable preferences and the Harberger-Laursen-Metzler effect," Canadian Journal of Economics, Canadian Economics Association, vol. 34(1), pages 290-307, February.
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Citations

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Cited by:
  1. Kazumichi Iwasa & Laixun Zhao, 2013. "Inequalities and Patience for Tomorrow," Discussion Paper Series DP2013-04, Research Institute for Economics & Business Administration, Kobe University.
  2. Ken-Ichi Hirose & Shinsuke Ikeda, 2013. "Decreasing Marginal Impatience and Capital Accumulation in a Two-country World Economy," ISER Discussion Paper 0882, Institute of Social and Economic Research, Osaka University.
  3. Taketo Kawagishi & Kazuo Mino, 2013. "Time Preference and Income Convergence in a Dynamic Heckscher-Ohlin Model," KIER Working Papers 880, Kyoto University, Institute of Economic Research.
  4. Ken-Ichi Hirose & Shinsuke Ikeda, 2013. "Time Preference and Dynamic Stability in an N-Country World Economy," ISER Discussion Paper 0887, Institute of Social and Economic Research, Osaka University.

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