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International Macroeconomic Policy: When Wealth Affects People's Impatience

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Author Info

  • Wang Peng

    (Institute for Advanced Studies, Wuhan University)

  • Heng-fu Zou

    (Institute for Advanced Studies, Wuhan University
    CEMA in Central University of Finance and Economics)

Abstract

Under a modified neo-classical framework, this paper reexamined the effect of international macroeconomic policies by rejecting the routine assumption of a constant rate of time preference. In the model presented here, we suppose the holdings of real financial wealth will affect people's impatience which has far-reaching implications towards various core issues in international macroeconomics. The introducing of wealth into instantaneous discounting function yields intriguing dynamics of consumption, real balances, and foreign bond holdings. One interesting feature of our model is that stationary rate of time preference no longer necessarily equals real interest rate. We also find that central bank's foreign exchange intervention is not super-neutral even if households capitalize all transfers from the government, which contradicts Obstfeld(1981) in that the distribution of the economy¡¯s claims on the rest of the world between the public and the central bank is relevant to the economic performance. The monetary policy affects the real factors, but how the economy behaves in the long run and in the short run differs a lot from Uzawa(1968) and Obstfeld(1981).

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Bibliographic Info

Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 530.

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Length: 20 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:cuf:wpaper:530

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Web page: http://cema.cufe.edu.cn/
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Keywords: international macroeconomic policy; impatience; foreign exchange; monetary policy;

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