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Decreasing Marginal Impatience and Capital Accumulation in a Two‐Country World Economy
Author(s) -
Hirose KenIchi,
Ikeda Shinsuke
Publication year - 2015
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/meca.12078
Subject(s) - economics , endowment , marginal product , productivity , welfare , time preference , general equilibrium theory , shock (circulatory) , capital (architecture) , stock (firearms) , marginal product of capital , capital accumulation , monetary economics , macroeconomics , capital formation , microeconomics , production (economics) , human capital , financial capital , market economy , medicine , history , mechanical engineering , philosophy , archaeology , epistemology , engineering
This research is the first to examine dynamic general equilibrium in a growing two‐country economy under decreasing marginal impatience (DMI). The stability condition is shown to be more restrictive than in the case of an endowment economy and/or under increasing marginal impatience (IMI). By analyzing global‐economy adjustment to time preference shocks, international transfers and productivity shocks, equilibrium dynamics in the presence of DMI differ drastically from what is obtained when the standard IMI model is used. For example, in a country characterized by DMI, a positive productivity shock improves the country's welfare level and lowers its steady‐state time preference and, hence, the steady‐state interest rate. This leads to an increase in the neighbouring country's capital stock.