Endogenous Discounting, the World Saving Glut and the U.S. Current Account

37 Pages Posted: 5 Nov 2007 Last revised: 1 Aug 2022

See all articles by Horag Choi

Horag Choi

Monash University

Nelson C. Mark

University of Notre Dame - Department of Economics and Econometrics; National Bureau of Economic Research (NBER)

Donggyu Sul

Independent

Date Written: November 2007

Abstract

We study the evolution of the U.S. current account in a two-country dynamic stochastic endowment model in which a single non-state contingent bond is the only internationally traded asset. The paper focuses on the world `saving glut' as the primary cause of continual deterioration in the current account and departs from the standard framework by introducing a three-parameter model of the subjective discount factor that depends on societal (per capita) variables that are external to household choices. When agents in the model are presented with U.S. and rest-of-world endowment data as the realization of the exogenous state vector, endogenously driven short-run international differences in subjective discounting that display increasing relative U.S. impatience create saving and current account imbalances that matches patterns observed in the data.

Suggested Citation

Choi, Horag and Mark, Nelson Chung and Sul, Donggyu, Endogenous Discounting, the World Saving Glut and the U.S. Current Account (November 2007). NBER Working Paper No. w13571, Available at SSRN: https://ssrn.com/abstract=1027190

Horag Choi

Monash University ( email )

Private Bag 92019
Auckland
New Zealand

Nelson Chung Mark (Contact Author)

University of Notre Dame - Department of Economics and Econometrics ( email )

442 Flanner
Notre Dame, IN 46556
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Donggyu Sul

Independent

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