Imports, Status Preference, and Foreign Borrowing
AbstractThis paper considers the implications of consumption and borrowing externalities in a small open economy framework. The former reflect the assumption that status conscious agents care about the relative consumption of imported goods, while the latter arise because agents do not take into account the effects of their borrowing decisions on the interest rate on debt. We analyze in the paper the impact of an increase in the degree of status preference on the saddlepath adjustment of the decentralized economy. In addition, the contrasting steadystate and dynamic properties of the social planner's economy are derived, along with the corresponding optimal tax and subsidy policies.
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Bibliographic InfoPaper provided by Institute for Advanced Studies in its series Economics Series with number 161.
Length: 33 pages
Date of creation: Sep 2004
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Other versions of this item:
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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