Endogenous time preference, consumption externalities, and trade: multiple steady states and indeterminacy

Akihiko Yanase () and Yukio Karasawa-Ohtashiro ()

Journal of Economics, 2019, vol. 126, issue 2, No 3, 153-177

Abstract: Abstract This study presents a two-sector dynamic general equilibrium model with capital accumulation and discusses the role of endogenous time preference and consumption externalities in closed and small open economies. While the economy has a unique and saddle-point stable steady state under autarky, under free trade with decreasing marginal impatience (i.e., a household’s discount rate is a decreasing function of its consumption), there might exist multiple steady states and indeterminacy of equilibrium paths. Specifically, if the degree of decreasing marginal impatience is sufficiently large and individuals’ preferences exhibit admiration, the dynamic equilibria with diversified production might become indeterminate. We also analyze the economy’s long-run trade pattern and its relationship with indeterminacy.

Keywords: Endogenous time preference; Consumption externality; Dynamic Heckscher–Ohlin model; Multiple steady states; Indeterminacy (search for similar items in EconPapers)
JEL-codes: D11 D62 E32 F43 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:126:y:2019:i:2:d:10.1007_s00712-018-0614-4

DOI: 10.1007/s00712-018-0614-4

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