Macroeconomic Dynamics in a Multi-country Economy: A Dynamic Optimization Approach

Shinsuke Ikeda and Yoshiyasu Ono

International Economic Review, 1992, vol. 33, issue 3, 629-44

Abstract: Using a multicountry model with perfect-foresight dynamic optimization by infinitely-lived households, the authors analyze the dynamics of macroeconomic nonmonetary and monetary variables. The authors show that the most patient country initially accumulates foreign debt but eventually decumulates this debt and becomes a creditor. It monotonically increases its consumption and experiences monotonic price and exchange-rate appreciation. The moderately-patient country initially accumulates foreign assets but eventually decumulates them, and becomes a debtor. Its consumption also follows a humped path. The least patient country monotonically decumulates foreign assets, lowers its consumption, and experiences rising inflation and exchange-rate depreciation. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1992
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