EconPapers    
Economics at your fingertips  
 

Self‐fulfilling patience

Liutang Gong and Wei Wang

Australian Economic Papers, 2020, vol. 59, issue 4, 336-357

Abstract: This paper explores macroeconomic implications of investment in patience in a standard neoclassical growth model with Becker‐Mulligan endogenous time preferences. The endogenous discount rate acts as a new margin for inter‐temporal decisions, in addition to the standard margin that hinges on the marginal return of capital. This time preference margin alters the equilibrium dynamics and stability of the neoclassical growth model substantially. When the discount rate is positive, there may exist multiple steady states that are either saddle‐point stable or unstable. When the discount rate is negative, the unique steady state is locally indeterminate due to self‐fulfilling patience investment. Interestingly, the existence of the local indeterminacy does not need any externality. When the discount rate is zero, various types of bifurcations can happen, leading to rich equilibrium dynamics such as limit cycles and chaos. We show that opening up the closed economy can cause aggregate instability.

Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://doi.org/10.1111/1467-8454.12190

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:ausecp:v:59:y:2020:i:4:p:336-357

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0004-900X

Access Statistics for this article

Australian Economic Papers is currently edited by Daniel Leonard

More articles in Australian Economic Papers from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2021-01-02
Handle: RePEc:bla:ausecp:v:59:y:2020:i:4:p:336-357