THE TRANSFER PROBLEM AND THE INTERTEMPORAL TERMS OF TRADE

In this paper the effects of a transfer on the intertemporal terms of trade are examined in the context of a simple two-country, two-period model. When intertemporal trade occurs because the two economies have different rates of time preference, a transfer improves the terms of t rade of the paying country. Alternatively, when trade occurs owing to international differences in the endowments of goods over the two peri ods, the effect of a transfer depends on (a) the relationship between the interest rate and the rates of time preference of the two countrie s and (b) the relationship between their elasticities of intertemporal consumption substitution.