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The Transfer Problem and the Intertemporal Terms of Trade

  • Slobodan Djajic
  • Sajal Lahiri
  • Pascalis Raimondos-Moller

In this paper, the effects of a transfer on the intertemporal terms of trade are examined in the context of a simple two-country, two-period model. When intertemporal trade occurs because the two economies have different rates of time preference, a transfer improves the terms of trade of the paying country. Alternatively, when trade occurs owing to international differences in the endowments of goods over the two periods, the effect of a transfer depends on (1) the relationship between the interest rate and the rates of time preference of the two countries and (2) the relationship between their elasticities of intertemporal consumption substitution.

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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 31 (1998)
Issue (Month): 2 (May)
Pages: 427-436

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Handle: RePEc:cje:issued:v:31:y:1998:i:2:p:427-436
Contact details of provider: Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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  1. Philip L. Brock, 1996. "International Transfers, the Relative Price on Non-Traded Goods, and the Current Account," Canadian Journal of Economics, Canadian Economics Association, vol. 29(1), pages 163-80, February.
  2. Galor, O & Polemarchakis, H M, 1987. "Intertemporal Equilibrium and the Transfer Paradox," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 147-56, January.
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