International Lending and Borrowing in a Stochastic, Stationary Equilibrium
This paper develops a simple general equilibrium model of international borrowing and lending in which national products are subject to random fluctuations. International capital flows arise from the efforts of risk-averse households in different countries to self-insure against random income fluctuations by accumulating foreign claims that can be used to finance a less-variable profile of consumption relative to national income. In the absence of aggregate uncertainty, a stationary, rational expectations equilibrium is shown to exist, despite the fact that rates of time preference differ among countries. A number of results, many of which enrich those in the existing literature, are obtained. Copyright 1990 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Volume (Year): 31 (1990)
Issue (Month): 3 (August)
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