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

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  • Heng-fu Zou

    (Public Economics Division, The World Bank)

Abstract

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.

Suggested Citation

  • 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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