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Money, time preference and external balance

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  • Weil, Philippe

Abstract

In monetary economies, international differences in rates of time preference do not in general lead to long run trade imbalances -- in sharp contrast with Butter's 119811 results on non-monetary overlapping generation economies. This claim is documented within the context of a simple two country framework in which new immortal families enter each economy over time, with the two countries differing only in their subjective discount rates. Even if consumers are more "impatient" at home than abroad, trade is balanced in the long run in the presence of valued fiat currencies in constant supply, and the current account is indeterminate.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 33 (1989)
Issue (Month): 2-3 (March)
Pages: 564-572

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Handle: RePEc:eee:eecrev:v:33:y:1989:i:2-3:p:564-572

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References

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  1. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  2. Weil, Philippe, 1989. "Overlapping families of infinitely-lived agents," Journal of Public Economics, Elsevier, vol. 38(2), pages 183-198, March.
  3. Weil, Philippe, 1987. "Permanent budget deficits and inflation," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 393-410, September.
  4. Willem H. Buiter, 1979. "Time Preference and International Lending and Borrowing in an Overlapping-Generations Model," NBER Working Papers 0352, National Bureau of Economic Research, Inc.
  5. Kareken, John & Wallace, Neil, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 207-22, May.
  6. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
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Cited by:
  1. Ghironi, Fabio, 2008. "The role of net foreign assets in a New Keynesian small open economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(6), pages 1780-1811, June.
  2. Eleni Iliopulos, 2008. "Collateral constraints, external imbalances and heterogeneous agents in a two-country world," Documents de recherche 08-12, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  3. International Monetary Fund, 2005. "Net Foreign Asset Positions and Consumption Dynamics in the International Economy," IMF Working Papers 05/82, International Monetary Fund.
  4. Fathali Firoozi, 1995. "External debt, time preference, and nontraded goods in a two-sector dynamic model of consumption," Open Economies Review, Springer, vol. 6(2), pages 167-178, April.
  5. repec:hal:journl:halshs-00429600 is not listed on IDEAS
  6. Futagami, Koichi & Shibata, Akihisa, 1999. "Welfare effects of bubbles in an endogenous growth model," Research in Economics, Elsevier, vol. 53(4), pages 381-403, December.
  7. Ghironi, Fabio, 2006. "Macroeconomic interdependence under incomplete markets," Journal of International Economics, Elsevier, vol. 70(2), pages 428-450, December.
  8. Maurice Obstfeld, 1989. "Intertemporal Dependence, Impatience, and Dynamics," NBER Working Papers 3028, National Bureau of Economic Research, Inc.
  9. Fabio Ghironi & Talan B. Iscan & Alessandro Rebucci, 2003. "Productivity Shocks and Consumption Smoothing in the International Economy," Boston College Working Papers in Economics 565, Boston College Department of Economics.

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