Real Interest Rates, Home Goods, and Optimal External Borrowing / Rudiger Dornbusch.

By:

Dornbusch, Rudiger

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w0779.Publication details: Cambridge, Mass. National Bureau of Economic Research 1981.Description: 1 online resource: illustrations (black and white)Subject(s):

F - International Economics

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: The paper investigates the optimal tire path of consumption and external borrowing in the dependent economy model. The small country faces given world prices and a given world real interest rates. The presence of a home goods sector implies that the relevant real interest rate appropriate to consumption decisions depends on the rate of change of the real price of home gods. The paper shows how transitory disturbances in output or in the world real interest rate affect the time profile of consumption. In particular it is shown that the presence of a home goods sector dampens the consumption effects of changes in interest rates.

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Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w0779 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

October 1981.

The paper investigates the optimal tire path of consumption and external borrowing in the dependent economy model. The small country faces given world prices and a given world real interest rates. The presence of a home goods sector implies that the relevant real interest rate appropriate to consumption decisions depends on the rate of change of the real price of home gods. The paper shows how transitory disturbances in output or in the world real interest rate affect the time profile of consumption. In particular it is shown that the presence of a home goods sector dampens the consumption effects of changes in interest rates.