A Simple Monetary Growth Model with Variable Rates of Time Preference

Tom Kompas and Omar Abdel-Razeq

International and Development Economics Working Papers from International and Development Economics

Abstract: This paper constructs a simple optimal monetary growth model in which an endogenous and variable rate of time preference provides a rational foundation for a Tobin-effect in a system where otherwise strong neoclassical assumptions (e.g., perfect foresight, an infinite planning horizon, and continuous marketclearing) are maintained. Changes in the proportional rate of growth of the nominal money supply affect both the rate of time preference (ñ) and the equilibrium capital—labour ratio. The impact effect of a fall in ñ (less impatience), and the induced capital accumulation that goes with it, drives the result. Proper transformation rules for two-state variable control problems and curvature and simulation results for the rate of time preference function are also established. The latter in particular provides a reasonable and easily understood foundation for simple systems in which the rate of time preference depends on an index of future consumption, and provides a counter-argument to well-known criticisms (e.g., Blanchard and Fischer (1989) and Barro and Sali-i-Martin (1995)) of Epstein—Uzawa rate of time preference functions. All results are obtained in an analytically simple way, using standard techniques.

JEL-codes: C61 D91 E1 E4 O42 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2001
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://crawford.anu.edu.au/degrees/idec/working_papers/IDEC01-10.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

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:idc:wpaper:idec01-10

Access Statistics for this paper

More papers in International and Development Economics Working Papers from International and Development Economics Contact information at EDIRC.
Bibliographic data for series maintained by Tom Kompas ( this e-mail address is bad, please contact ).