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Arman Mansoorian and Constantine Angyridis
 
''The Harberger-Laursen-Metzler effect with with Marshallian preferences''
( 2008, Vol. 6 No.11 )
 
 
The effects of a terms of trade deterioration on the current account are studied when the representative agent has Marshallian preferences, with which the rate of time preference is a decreasing function of savings. A terms of trade deterioration reduces the permanent income of the representative agent. With Marshallian preferences, savings fall and the country runs a current account deficit. The numerical evaluations of the model suggest that with standard functional forms and reasonable parameter values the Harberger-Laursen-Metzler effect is recovered in an infinite horizon model with an endogenous rate of time preference.
 
 
Keywords:
JEL: F4 - Macroeconomic Aspects of International Trade and Finance: General
 
Manuscript Received : Aug 22 2007 Manuscript Accepted : Mar 06 2008

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