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Unformatted text preview: The Transfer Problem Barry W. Ickes Econ 434 Fall 2009 1. Introduction The transfer problem arose in the late 1920’s in discussion of the problem of German reparations payments from WW1. The practical question was whether the payments were too high relative to Germany’s capacity to pay. 1 Initially, it was thought that the only problem was budgetary: could Germany reduce domestic absorption su ﬃ ciently to make a payment. Keynes argued, however, that a secondary burden of the transfer would occur because of the change in the terms of trade that results from the shift in spending patterns across the countries. Ohlin countered that Keynes had ignored the impact of the transfer on demand in the recipient country, and that there could be no presumption that a transfer would have a secondary burden. A huge literature developed in subsequent years. To see the key point of Ohlin’s critique consider a two-country, two commodity model, and assume that production of both goods is exogenously given and that all income is devoted to...
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This note was uploaded on 01/11/2012 for the course ECONOMICS 434 taught by Professor Staff during the Fall '11 term at Penn State.
- Fall '11