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Dynamic Patterns of Trade Imbalances with Recursive Preference
Author(s) -
Inoue Tadashi
Publication year - 2008
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2008.00737.x
Subject(s) - economics , consumption (sociology) , preference , time preference , capital (architecture) , position (finance) , asset (computer security) , debt , production (economics) , function (biology) , small open economy , monetary economics , production function , capital accumulation , microeconomics , macroeconomics , monetary policy , finance , profit (economics) , social science , computer security , archaeology , evolutionary biology , sociology , biology , computer science , history
Based on the recursive preference approach, the dynamic and global properties of the two‐country open economy are examined with one good and inputs of labor and capital, with capital being freely traded internationally. First, by showing that the world's consumption increases (decreases) with an increase (decrease) in the world's capital, the global stability of the economy is obtained. Secondly, the nonmonotonicity of consumption between impatient country 1 and patient country 2 is established. Thirdly, with the Cobb–Douglas‐type production function and country 1's technological superiority, the dynamic trade patterns and the asset–debt position are derived.