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A Life-Cycle Overlapping-Generations Model of the Small Open Economy

Author

Listed:
  • Heijdra, Ben J.
  • Romp, Ward E.

    (Groningen University)

Abstract
In this paper we construct an overlapping generations model for the small open economy incorporating a realistic description of the mortality process. With agedependent mortality, the typical life-cycle pattern of consumption and saving results from the maximizing behaviour of individual households. Our ?Blanchard-Yaari-Modigliani?model is used to analytically study a number of typical shocks affecting the small open economy, namely a balanced-budget public spending shock, a temporary Ricardian tax cut, and an interest rate shock. The demographic details matter a lot?both the impulse-response functions and the welfare profiles (associated with the different shocks) are critically affected by them. These demographic details furthermore do not wash out in the aggregate. The model is flexible and can be applied to a wide variety of theoretical and policy issues.

Suggested Citation

  • Heijdra, Ben J. & Romp, Ward E., 2005. "A Life-Cycle Overlapping-Generations Model of the Small Open Economy," Research Report 05C04, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    • Handle: RePEc:gro:rugsom:05c04
    as

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    File URL: http://irs.ub.rug.nl/ppn/277155193
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    References listed on IDEAS

    as
    1. Leon Bettendorf & Ben Heijdra, 2001. "Intergenerational and International Welfare Leakages of a Product Subsidy in a Small Open Economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(5), pages 705-729, November.
    2. Heijdra, Ben J. & Horst, Albert van der & Meijdam, Lex, 2002. "Public investment and intergenerational distribution under alternative modes of financing," Research Report 02C51, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    3. Menahem E. Yaari, 1965. "Uncertain Lifetime, Life Insurance, and the Theory of the Consumer," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(2), pages 137-150.
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    5. Leon Bettendorf & Ben Heijdra, 2001. "Intergenerational welfare effects of a tariff under monopolistic competition," Journal of Economics, Springer, vol. 73(3), pages 313-346, October.
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    8. Lans Bovenberg, A., 1993. "Investment-promoting policies in open economies : The importance of intergenerational and international distributional effects," Journal of Public Economics, Elsevier, vol. 51(1), pages 3-54, May.
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    11. Bovenberg, A.L., 1993. "Investment-promoting policies in open economies : The importance of intergenerational and international distributional effects," Other publications TiSEM 2a11d648-7fac-4a3f-b6bf-c, Tilburg University, School of Economics and Management.
    12. Heijdra, Ben J. & Meijdam, Lex, 2002. "Public investment and intergenerational distribution," Journal of Economic Dynamics and Control, Elsevier, vol. 26(5), pages 707-735, May.
    13. Lembke B., 1918. "√ a. p," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 111(1), pages 709-712, February.
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