International Macroeconomic Policy: When Wealth Affects People's Impatience
AbstractUnder 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 InfoPaper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 530.
Length: 20 pages
Date of creation: 2012
Date of revision:
international macroeconomic policy; impatience; foreign exchange; monetary policy;
Find related papers by JEL classification:
- D90 - Microeconomics - - Intertemporal Choice - - - General
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-01 (All new papers)
- NEP-CBA-2012-02-01 (Central Banking)
- NEP-DGE-2012-02-01 (Dynamic General Equilibrium)
- NEP-MAC-2012-02-01 (Macroeconomics)
- NEP-OPM-2012-02-01 (Open Economy Macroeconomic)
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