Working Paper: NBER ID: w1944
Authors: Richard H. Clarida
Abstract: This paper is a theoretical investigation of international lending and \nborrowing in the context of a general equilibrium model in which national \nproductivities are subject to random fluctuations and rates of time \npreference differ among countries. International capital flows arise from \nthe efforts of risk-averse households situated in different countries to \nself-insure against random productivity fluctuations. We establish the \nexistence of a rational expectations equilibrium in which the world \ninterest rate is constant and strictly less than the rate of time \npreference of the least impatient countries. The rate of time preference, \nsolvency restrictions on borrowing, and balanced-budget fiscal policies are \nrigorously analyzed.
Keywords: International Lending; Borrowing; Stochastic Equilibrium; General Equilibrium Model; Productivity Fluctuations
JEL Codes: F32; F34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Risk aversion (D81) | International capital flows (F21) |
| Time preference (D15) | World interest rate (E43) |
| Time preference (D15) | Expected asymptotic trade balance deficits and service account surpluses (F32) |
| Taxation (H20) | Expected asymptotic private consumption (D11) |
| Taxation (H20) | Expected trade deficits (F14) |