Working Paper: NBER ID: w21773
Authors: David Backus; Chase Coleman; Axelle Ferriere; Spencer Lyon
Abstract: In models with recursive preferences, endogenous variation in Pareto weights would be interpreted as wedges from the perspective of a frictionless model with additive preferences. We describe the behavior of the (relative) Pareto weight in a two-country world and explore its interaction with consumption and the real exchange rate.
Keywords: No keywords provided
JEL Codes: F31; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fluctuation in the relative Pareto weight (D39) | changes in consumption behavior (D12) |
| fluctuation in the relative Pareto weight (D39) | changes in the real exchange rate (F31) |
| increasing risk aversion (D81) | more persistence in the real exchange rate (F31) |
| decreasing intertemporal substitution (D15) | more persistence in the real exchange rate (F31) |
| variations in the relative supply of foreign and domestic goods (F31) | demand through their impact on future utility (D11) |