Hyperbolic Discounting and Macroeconomic Policy

Christopher Tsoukis (), Frederic Tournemaine and Edward John Driffill ()
Additional contact information
Christopher Tsoukis: Keele University
Edward John Driffill: Yale-NUS College

Chapter Chapter 6 in Social and Behavioural Macroeconomics, 2025, pp 201-253 from Springer

Abstract: Abstract This chapter continues the investigation of the effects of “hyperbolic discounting” (HD) by analysing its implications for short-term stabilisation policy, in particular, monetary policy. The latter takes the form of a “Taylor rule” of interest rate setting. The analysis is quite novel in terms of subject-matter and method. The production setup is an AK model with a temporary output gap arising out of a small menu of shocks with a simple structure—a demand, productivity, and pricing shock. A novelty in relation to Chapter 5 is inflation, which takes the form of a standard New Keynesian Phillips Curve. Thus, a New Keynesian “three-equation” model arises, with a Modified IS curve (from intertemporal optimisation), a Taylor rule, and an inflation equation. Intertemporal optimisation proceeds as in Chapter 5 , albeit in discrete time. It is shown that a rise in exogenous “present bias” takes us closer to a “Keynesian” type of model, in which the standard (Keynesian) government spending multiplier increases (against the result in Chapter 5 ). The same change also has important implications for the optimal design and effectiveness of monetary policy. The effects of financial “present bias” (i.e. myopia) are also briefly investigated.

Keywords: Hyperbolic discounting; Monetary policy; “Three-equation” New Keynesian model (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:spr:sprchp:978-3-031-77748-6_6

Ordering information: This item can be ordered from
http://www.springer.com/9783031777486

DOI: 10.1007/978-3-031-77748-6_6

Access Statistics for this chapter

More chapters in Springer Books from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().