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A Life-Cycle Overlapping-Generations Model of the Small Open Economy

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  • Heijdra, Ben J.
  • Romp, Ward E.

    (Groningen University)

Abstract

In this paper we construct an overlapping generations model for the small open economy incorporating a realistic description of the mortality process. With agedependent mortality, the typical life-cycle pattern of consumption and saving results from the maximizing behaviour of individual households. Our ?Blanchard-Yaari-Modigliani?model is used to analytically study a number of typical shocks affecting the small open economy, namely a balanced-budget public spending shock, a temporary Ricardian tax cut, and an interest rate shock. The demographic details matter a lot?both the impulse-response functions and the welfare profiles (associated with the different shocks) are critically affected by them. These demographic details furthermore do not wash out in the aggregate. The model is flexible and can be applied to a wide variety of theoretical and policy issues.

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Bibliographic Info

Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 05C04.

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Date of creation: 2005
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Handle: RePEc:dgr:rugsom:05c04

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  1. Bovenberg, A.L., 1992. "Investment-promoting policies in open economies: The importance of intergenerational and international distributional effects," Discussion Paper 1992-20, Tilburg University, Center for Economic Research.
  2. Leon Bettendorf & Ben Heijdra, 2001. "Intergenerational welfare effects of a tariff under monopolistic competition," Journal of Economics, Springer, vol. 73(3), pages 313-346, October.
  3. Heijdra, Ben J. & Horst, Albert van der & Meijdam, Lex, 2002. "Public investment and intergenerational distribution under alternative modes of financing," Research Report 02C51, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  4. Heijdra, Ben J. & Meijdam, Lex, 2002. "Public investment and intergenerational distribution," Journal of Economic Dynamics and Control, Elsevier, vol. 26(5), pages 707-735, May.
  5. Hamid Faruqee & Douglas Laxton, 2000. "Life-Cycles, Dynasties, Savings," IMF Working Papers 00/126, International Monetary Fund.
  6. Leon Bettendorf & Ben Heijdra, 2001. "Intergenerational and International Welfare Leakages of a Product Subsidy in a Small Open Economy," International Tax and Public Finance, Springer, vol. 8(5), pages 705-729, November.
  7. Heijdra, Ben J., 2009. "Foundations of Modern Macroeconomics," OUP Catalogue, Oxford University Press, edition 2, number 9780199210695, Octomber.
  8. Hamid Faruqee, 2002. "Debt, Deficits, and Age-Specific Mortality," IMF Working Papers 02/19, International Monetary Fund.
  9. Buiter, Willem H, 1988. "Death, Birth, Productivity Growth and Debt Neutrality," Economic Journal, Royal Economic Society, vol. 98(391), pages 279-93, June.
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