Real Interest Rates, Home Goods, and Optimal External Borrowing
AbstractThe paper investigates the optimal tire path of consumption and external borrowing in the dependent economy model. The small country faces given world prices and a given world real interest rates. The presence of a home goods sector implies that the relevant real interest rate appropriate to consumption decisions depends on the rate of change of the real price of home gods. The paper shows how transitory disturbances in output or in the world real interest rate affect the time profile of consumption. In particular it is shown that the presence of a home goods sector dampens the consumption effects of changes in interest rates.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Political Economy.
Volume (Year): 91 (1983)
Issue (Month): 1 (February)
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Web page: http://www.journals.uchicago.edu/JPE/
Other versions of this item:
- Rudiger Dornbusch, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," NBER Working Papers 0779, National Bureau of Economic Research, Inc.
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.:
- Maurice Obstfeld, 1981.
"Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?,"
NBER Working Papers
0686, National Bureau of Economic Research, Inc.
- Obstfeld, Maurice, 1982. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," The Quarterly Journal of Economics, MIT Press, vol. 97(2), pages 251-70, May.
- Bruno, Michael, 1976. "The Two-Sector Open Economy and the Real Exchange Rate," American Economic Review, American Economic Association, vol. 66(4), pages 566-77, September.
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