Pareto Weights as Wedges in Two-Country Models
34 Pages Posted: 7 Dec 2015 Last revised: 30 Jun 2022
Date Written: December 2015
In models with recursive preferences, endogenous variation in Pareto weights would be interpreted as wedges from the perspective of a frictionless model with additive preferences. We describe the behavior of the (relative) Pareto weight in a two-country world and explore its interaction with consumption and the real exchange rate.
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