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Short-Run Analysis of Income Fluctuation and Optimum Foreign Borrowing in the Bardhan-Pitchford Model


  • Heng-fu Zou

    (Public Economics Division, The World Bank)


This paper utilizes the technique developed by Kenneth Judd to quantify the short-run effects of temporal income falls on the current account. It is found that (a) for both a fixed time discount rate and an endogenous discount rate, a future, temporal fall in income improves the initial current account; (b) with a current income fall and with no future income change, the initial current account deteriorates; (c) but when a current income fall is combined with a future income fall, the effect on the initial current account is ambiguous.

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  • Heng-fu Zou, 2011. "Short-Run Analysis of Income Fluctuation and Optimum Foreign Borrowing in the Bardhan-Pitchford Model," CEMA Working Papers 433, China Economics and Management Academy, Central University of Finance and Economics.
  • Handle: RePEc:cuf:wpaper:433

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    References listed on IDEAS

    1. Juan D. Carrillo & Thomas Mariotti, 2000. "Strategic Ignorance as a Self-Disciplining Device," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 529-544.
    2. Robert J. Barro, 1999. "Ramsey Meets Laibson in the Neoclassical Growth Model," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1125-1152.
    3. David I. Laibson, 1996. "Hyperbolic Discount Functions, Undersaving, and Savings Policy," NBER Working Papers 5635, National Bureau of Economic Research, Inc.
    4. Heng-fu Zou, 1995. "The spirit of capitalism and savings behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 28(1), pages 131-143, September.
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