Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/189309 
Year of Publication: 
2005
Series/Report no.: 
Queen's Economics Department Working Paper No. 1025
Publisher: 
Queen's University, Department of Economics, Kingston (Ontario)
Abstract: 
We study the classic transfer problem of predicting the effects of an international transfer on the terms of trade and the current account. A two-country model with debt and capital allows for realistic features of historical transfers: they follow wartime increases in government spending and are financed partly by borrowing. The model is applied to the largest historical transfer, the Franco-Prussian War indemnity of 1871-1873. In these three years, France transferred to Germany an amount equal to 22 percent of a year's GDP. When the transfer is combined with measured shocks to fiscal policy and a proxy for productivity shocks over the period, the model provides a very close fit to the historical sample paths of French GDP, terms of trade, net exports, and aggregate consumption. This makes a strong case for the dynamic general equilibrium approach to studying the transfer problem.
Subjects: 
transfer problem
current account
terms of trade
JEL: 
F32
F41
N14
Document Type: 
Working Paper

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