The Ideal Inflation‐Indexed Bond and Irving Fisher's Impatience Theory of Interest with Overlapping Generations

John Geanakoplos

American Journal of Economics and Sociology, 2005, vol. 64, issue 1, 257-306

Abstract: Abstract Irving Fisher long advocated inflation‐indexed bonds. But with what index? I prove in the context of a multicommodity CAPM world that the best welfare‐improving bond pays the minimum money needed to achieve the same utility, and not the minimum needed to buy an ideal commodity bundle. Irving Fisher also developed and advocated the impatience theory of interest. But in OLG economies, the rate of interest is determined by population growth, not impatience. I reconcile this contradiction by proving that in stationary OLG economies with land, the interest rate at the unique steady state does depend on impatience. Indeed, the proposition that greater impatience creates higher interest rates holds more generally in OLG with land than in Fisher's two‐period model, because then income effects and substitution effects naturally work in the same direction.

Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1111/j.1536-7150.2005.00363.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:ajecsc:v:64:y:2005:i:1:p:257-306

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0002-9246

Access Statistics for this article

American Journal of Economics and Sociology is currently edited by Laurence S. Moss

More articles in American Journal of Economics and Sociology from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().