 Naïve agents with non-unitary discounting rate in a monetary economyKoichi Futagami and Daiki Maeda Journal of Macroeconomics, 2023, vol. 78, issue C Abstract: We incorporate naïve agents with a non-unitary discounting rate into a cash-in-advance (CIA) model. Through this extension, we obtain the following results. First, we show that there exists an equilibrium in which the CIA constraint does not bind when individuals discount their utilities from future consumption lower than their utilities from future leisure time. Notably, this non-binding equilibrium exists even if the nominal interest rate takes a positive value. Second, we demonstrate that increases in the money supply growth rate decrease individuals’ saving rates in equilibrium, where the CIA constraint does not bind. Third, we exhibit that when the equilibrium where the CIA constraint does not bind exists, the welfare level of this equilibrium can be higher than that of the equilibrium in which the CIA constraint binds. Moreover, we deduce that the Friedman rule cannot be optimal in the equilibrium in which the CIA constraint binds and present the result that the optimal level of the optimal nominal interest rate is affected by the difference in the discount rates. Keywords: Non-unitary discounting rate; Naïve agents; CIA constraint; Monetary policy; Friedman rule (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:78:y:2023:i:c:s0164070423000502 DOI: 10.1016/j.jmacro.2023.103550 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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