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Endogenous discounting, the world saving glut and the U.S. current account

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Author Info
Choi, Horag
Mark, Nelson C.
Sul, Donggyu

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Abstract

We study the evolution of the U.S. current account in a two-country dynamic stochastic endowment model in which a single non-state contingent bond is the only internationally traded asset. The paper focuses on the world 'saving glut' as the primary cause of continual deterioration in the current account and departs from the standard framework by introducing a three-parameter model of the subjective discount factor that depends on societal (per capita) variables that are external to household choices. When agents in the model are presented with U.S. and rest-of-world endowment data as the realization of the exogenous state vector, endogenously driven short-run international differences in subjective discounting that display increasing relative U.S. impatience create saving and current account imbalances that matches patterns observed in the data.

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Publisher Info
Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 75 (2008)
Issue (Month): 1 (May)
Pages: 30-53
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Handle: RePEc:eee:inecon:v:75:y:2008:i:1:p:30-53

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Horag Choi & Nelson C. Mark, 2009. "Trending Current Accounts," NBER Working Papers 15244, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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