OPTIMAL GROWTH AND THE BEHAVIOR OF THE CURRENT ACCOUNT UNDER AN ENDOGENOUS TIME PREFERENCE RATE
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Unlike previous literature where investment is often ignored because the dynamic behavior of the economy is complex due to investment, this paper discusses optimal growth and the current account behavior for a small open economy which imports an intermediate input for production under an endogenous time preference rate as in Uzawa (1968). This paper finds that if the economy behaves optimally, stages in the balance of payments, that is, an economy transforming from a net debtor to a net creditor, exist if the economy is sufficiently patient compared to the rest of the world. If the economy experiences permanent deteriorations in terms-of-trade, the current account improves as the economy tries to maintain the initial consumption under the endogenous time preference rate. The level of savings has to rise sufficiently to enable the economy to lend to the world capital market to earn interest and thereby increasing the level of consumption. For temporary deteriorations in terms-of-trade, the current account improves initially but deteriorates later as investment accelerates to maintain the original level of capital stock.
Abstract
Unlike previous literature where investment is often ignored because the dynamic behavior of the economy is complex due to investment, this paper discusses optimal growth and the current account behavior for a small open economy which imports an intermediate input for production under an endogenous time preference rate as in Uzawa (1968). This paper finds that if the economy behaves optimally, stages in the balance of payments, that is, an economy transforming from a net debtor to a net creditor, exist if the economy is sufficiently patient compared to the rest of the world. If the economy experiences permanent deteriorations in terms-of-trade, the current account improves as the economy tries to maintain the initial consumption under the endogenous time preference rate. The level of savings has to rise sufficiently to enable the economy to lend to the world capital market to earn interest and thereby increasing the level of consumption. For temporary deteriorations in terms-of-trade, the current account improves initially but deteriorates later as investment accelerates to maintain the original level of capital stock.
참고문헌 (11)
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