Heterogeneous Households, the Distribution of Wealth, and the Laursen-Metzler Effect
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.
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Volume (Year): 3 (1995)
Issue (Month): 1 (February)
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