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Asset Accumulation, Fertility Choice and Nondegenerate Dynamics in a Small Open Economy

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  • Alberto Petrucci

    (Università del Molise and LUISS G. Carli)

Abstract

This paper shows that the assumption of elastic fertility choices represents an unconsidered way of introducing nondegenerate dynamics within an immortal small open economy, facing perfect capital mobility and no adjustment costs associated with capital accumulation, and having a fixed discount rate. The transient dynamics are obtained since fertility, which enters the Euler equation, renders the growth of the marginal utility of wealth strictly interconnected with wealth accumulation. The comparative dynamics are studied for two exogenous shocks: an increase in thrift, which changes fertility and capital formation permanently, and an increase in government spending, which alters fertility and capital stock temporarily.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2004.121.

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Date of creation: Oct 2004
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Handle: RePEc:fem:femwpa:2004.121

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Keywords: Endogenous population; Capital accumulation; Current account; Transitional dynamics;

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  1. 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.
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  4. Bhandari, Jagdeep S. & Ul Haque, Nadeem & Turnovsky, Stephen J., 1989. "Growth, debt, and sovereign risk in a small, open economy," Policy Research Working Paper Series 260, The World Bank.
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  16. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
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