Time-inconsistent discounting and the Friedman rule: roles of non-unitary discounting

Takeo Hori, Koichi Futagami and Shoko Morimoto

Oxford Economic Papers, 2021, vol. 73, issue 3, 1200-1217

Abstract: We examine the optimality of the Friedman rule by considering recent development of 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, by 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, while it is not optimal in the first model if agents discount consumption is at a higher rate than leisure.

JEL-codes: E5 E71 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Working Paper: Time-Inconsistent Discounting and the Friedman Rule: The Role of Non-Unitary Discounting (2018)
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