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F.X. Hof, F. Wirl:
"Wealth Induced Multiple Equilibria in Small Open Economy Versions of the Ramsey Model";
Homo Oeconomicus, 25 (2008), 1; 107 - 128.

The small open economy version of the Ramsey model exhibits the counterfactual outcome that consumption tends to zero in the long run in case that domestic residents are relatively impatient. It is shown that incorporating either absolute or relative wealth preferences allows for multiple interior steady states, while retaining the standard steady state (no matter how much wealth is appreciated); moreover, both frameworks can be observationally equivalent despite substantial differences in preferences. Convergence to an interior steady state arises if the initial level of nonhuman wealth exceeds an endogenously determined threshold value. This property of a history dependent evolution is surprising for a strict concave framework (without externalities in case of absolute wealth preferences).

Open economy, Ramsey model, wealth effects, history dependence

http://publik.tuwien.ac.at/files/PubDat_176593.pdf