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Heterogeneous Households, the Distribution of Wealth, and the Laursen-Metzler Effect

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  • Karayalcin, Cem

Abstract

To study the effects of a terms-of-trade deterioration the paper constructs a dynamic model with heterogeneous households that maximize intertemporal utility. It shows that insofar as this shock leads to a redistribution of wealth--an outcome ignored by the literature because of the representative-agent assumption invariably adopted--it may give rise to an initial current-account deficit and nonmonotonic adjustment paths. The paper also buttresses the argument that heterogeneous-household models help explain the observed "excess smoothness" of consumption. Copyright 1995 by Blackwell Publishing Ltd.

Suggested Citation

  • Karayalcin, Cem, 1995. "Heterogeneous Households, the Distribution of Wealth, and the Laursen-Metzler Effect," Review of International Economics, Wiley Blackwell, vol. 3(1), pages 86-103, February.
  • Handle: RePEc:bla:reviec:v:3:y:1995:i:1:p:86-103
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    Cited by:

    1. Cardi, Olivier, 2007. "Another View Of The J-Curve," Macroeconomic Dynamics, Cambridge University Press, vol. 11(02), pages 153-174, April.
    2. CARDI, Oliver & BERTINELLI, Luisito, 2004. "A formal model of krugman’s intuition on the J-curve," CORE Discussion Papers 2004043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Shinsuke Ikeda, 2009. "Export- and Import-Specific Habit Formation," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 709-718, November.

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