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Inflation Stabilisation with Durable Goods and Endogenous Time Preference *
Author(s) -
MANSOORIAN ARMAN,
MOHSIN MOHAMMED
Publication year - 2010
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2009.00610.x
Subject(s) - economics , boom , inflation (cosmology) , durable good , consumption (sociology) , preference , recession , time preference , small open economy , asset (computer security) , monetary economics , position (finance) , investment (military) , microeconomics , macroeconomics , monetary policy , finance , physics , theoretical physics , social science , computer security , environmental engineering , sociology , politics , computer science , law , political science , engineering
We consider inflation stabilisation policies for a small open economy with an endogenous time preference when consumption exhibits durability. The time preference effect and the durability effect have competing influences on the adjustment of consumption expenditures, which will likely exhibit an initial boom followed by a recession. Further, inflation stabilisation leads to an increase in labour supply and a boom in investment and output. The country experiences a sharp deterioration in its net foreign asset position.