INDETERMINACY IN A LOG-LINEARIZED NEOCLASSICAL ROWTH MODEL WITH QUASI-GEOMETRIC DISCOUNTING

Lilia Maliar and Serguei Maliar

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: This paper studies the properties of solutions to a log-linearized version of the neoclassical growth model with quasi-geometric discounting. We show that after the log-linearization, the model has indeterminacy and multiplicity of equilibria even though the original non-linear model has a unique interior solution. Specifically, in both the deterministic and stochastic cases, the log-linearized model has a continuum of steady states. In the deterministic case, there is a unique log-linear policy function leading to each steady state, while in the stochastic case, there is a continuum of log-linear policy functions, associated with each steady state. Hence, the standard log-linearization method cannot be applied for solving models with quasi-geometric discounting.

Keywords: quasi-geometric (quasi-hyperbolic) discounting; time inconsistency; neoclassical growth model (search for similar items in EconPapers)
JEL-codes: C73 D90 E21 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2003-04
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http://www.ivie.es/downloads/docs/wpasad/wpasad-2003-13.pdf Fisrt version / Primera version, 2003 (application/pdf)

Related works:
Journal Article: Indeterminacy in a log-linearized neoclassical growth model with quasi-geometric discounting (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2003-13

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