The Harberger-Laursen-Metzler effect with with Marshallian preferences

Arman Mansoorian and Constantine Angyridis ()
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Constantine Angyridis: Ryerson University

Economics Bulletin, 2008, vol. 6, issue 11, 1-11

Abstract: The effects of a terms of trade deterioration on the current account are studied when the representative agent has Marshallian preferences, with which the rate of time preference is a decreasing function of savings. A terms of trade deterioration reduces the permanent income of the representative agent. With Marshallian preferences, savings fall and the country runs a current account deficit. The numerical evaluations of the model suggest that with standard functional forms and reasonable parameter values the Harberger-Laursen-Metzler effect is recovered in an infinite horizon model with an endogenous rate of time preference.

JEL-codes: F4 (search for similar items in EconPapers)
Date: 2008-03-06
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