Decreasing marginal impatience in a two-country world economy |
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Authors: | Ken-ichi Hirose Shinsuke Ikeda |
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Institution: | 1. The Faculty of Commerce, Otaru University of Commerce, 3-5-21 Midori, Otaru, Hokkaido, 047-8501, Japan 2. The Institute of Social and Economic Research, Osaka University, 6-1 Mihogaoka, Ibaraki, Osaka, 567-0047, Japan
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Abstract: | By using a two-country model with endogenous time preference, this paper examines the dynamic implication of decreasing marginal
impatience (DMI). To ensure stability, we assume that one country has DMI whereas the other has increasing marginal impatience
(IMI). The resultant equilibrium dynamics differ from what can be inferred from the analysis of the standard IMI model (e.g.,
Devereux and Shi in J Int Econ 30:1–25, 1991). An increase in fiscal spending, in either country with DMI or IMI, has always contrasting long-run effects on domestic
and foreign consumption and hence on domestic and foreign welfare; and the same policy definitely raises the interest rate
in the long run. |
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Keywords: | |
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