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The Harberger-Laursen-Metzler effect with with Marshallian preferences

Author

Listed:
  • Arman Mansoorian

    (York University)

  • Constantine Angyridis

    (Ryerson University)

Abstract

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.

Suggested Citation

  • Arman Mansoorian & Constantine Angyridis, 2008. "The Harberger-Laursen-Metzler effect with with Marshallian preferences," Economics Bulletin, AccessEcon, vol. 6(11), pages 1-11.
    • Handle: RePEc:ebl:ecbull:eb-07f40020
    as

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    References listed on IDEAS

    as
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    4. Persson, Torsten & Svensson, Lars E O, 1985. "Current Account Dynamics and the Terms of Trade: Harberger-Laursen-Metzler Two Generations Later," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 43-65, February.
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    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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