Decreasing and increasing marginal impatience and the terms of trade in an interdependent world economy

Ken-Ichi Hirose and Shinsuke Ikeda

Journal of Economic Dynamics and Control, 2012, vol. 36, issue 10, 1551-1565

Abstract: Using a two-good, two-country model, we examine macroeconomic adjustment by allowing for decreasing and increasing marginal impatience (DMI and IMI). In the reference case where both countries have IMI, a negative output shock in one country lowers the interest rate and both countries' welfare levels in steady state, whereas, when either one country has DMI, the negative income shock raises the interest rate, thereby benefiting the IMI country and harming the DMI one in steady state. In a country either with IMI or DMI, the Harberger–Laursen–Metzler effect takes place if negative ‘welfare-supporting’ effects dominate positive ‘income-compensating’ effects.

Keywords: Decreasing (increasing) marginal impatience; Two-country economy; Terms of trade; Current account (search for similar items in EconPapers)
JEL-codes: E00 F32 F41 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:36:y:2012:i:10:p:1551-1565

DOI: 10.1016/j.jedc.2012.04.003

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