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International Lending and Borrowing in a Stochastic Sequence Equilibrium

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Richard H. Clarida
Abstract

This paper is a theoretical investigation of international lending and borrowing in the context of a general equilibrium model in which national productivities are subject to random fluctuations and rates of time preference differ among countries. International capital flows arise from the efforts of risk-averse households situated in different countries to self-insure against random productivity fluctuations. We establish the existence of a rational expectations equilibrium in which the world interest rate is constant and strictly less than the rate of time preference of the least impatient countries. The rate of time preference, solvency restrictions on borrowing, and balanced-budget fiscal policies are rigorously analyzed.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1944.

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Date of creation: Jun 1986
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Handle: RePEc:nbr:nberwo:1944

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  1. Maurice Obstfeld, 1983. "Intertemporal Price Speculation and the Optimal Current-Account Deficit," NBER Working Papers 1100, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Buiter, Willem H, 1981. "Time Preference and International Lending and Borrowing in an Overlapping-Generations Model," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 769-97, August. [Downloadable!] (restricted)
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  3. Danthine, Jean-Pierre & Donaldson, John B, 1981. "Stochastic Properties of Fast vs. Slow Growing Economies," Econometrica, Econometric Society, vol. 49(4), pages 1007-33, June. [Downloadable!] (restricted)
  4. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Oxford University Press, vol. 18(2), pages 203-20, April.
  5. Sachs, Jeffrey, 1982. " The Current Account in the Macroeconomic Adjustment Process," Scandinavian Journal of Economics, Blackwell Publishing, vol. 84(2), pages 147-59.
  6. Scheinkman, Jose A & Weiss, Laurence, 1986. "Borrowing Constraints and Aggregate Economic Activity," Econometrica, Econometric Society, vol. 54(1), pages 23-45, January. [Downloadable!] (restricted)
  7. Schechtman, Jack, 1976. "An income fluctuation problem," Journal of Economic Theory, Elsevier, vol. 12(2), pages 218-241, April. [Downloadable!] (restricted)
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