Capital Accumulation and the Current Account in a Two-Country Model

Michael Devereux and Shouyong Shi

Working Paper from Economics Department, Queen's University

Abstract: This paper looks at the joint determination of international indebtedness and capital accumulation in a two-country model. National rates of time preference are endogenous, and adjust along an optimal path to come into equality with one another in the steady state. A country's level of indebtedness is positively related to its degree of 'impatience', and its technology advantage, and negatively related to the share of government spending in GDP. Steady state creditor countries tend to have current account surpluses during episodes of world output growth, and vice versa for debtor countries. This gives rise to a possible nonmonotonic adjustment in the current account and in consumption.

Keywords: capital; economic models; debt (search for similar items in EconPapers)
Pages: 31 pages
Date: 1989
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Journal Article: Capital accumulation and the current account in a two-country model (1991)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:761

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