Time-Inconsistent Discounting and the Friedman Rule: The Role of Non-Unitary Discounting

Takeo Hori () and Koichi Futagami
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Takeo Hori: Department of Industrial Engineering and Economics, School of Engineering, Tokyo Institute of Technology

No 18-04, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: We examine the optimality of the Friedman rule by considering recent developments in behavioral economics. We construct a simple macroeconomic model where agents discount consumption and leisure at different rates. We also consider a standard exponential discounting model and a hyperbolic discounting model, assuming that the same discounting applies to both consumption and leisure. Money is introduced via a cash-in-advance constraint. Although the three models are observationally equivalent, they provide different policy implications. The Friedman rule is optimal in the latter two models, whereas it is not optimal in the first model when agents discount consumption at a higher rate than leisure.

Keywords: Non-unitary discount rate; Hyperbolic discounting; Exponential discounting; Friedman rule; Optimal inflation (search for similar items in EconPapers)
JEL-codes: E5 E71 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2018-02
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Time-inconsistent discounting and the Friedman rule: roles of non-unitary discounting (2021)
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