Government Purchases and Real Interest Rates with Endogenous Time Preference

Michael Devereux

Working Paper from Economics Department, Queen's University

Abstract: This note shows that the observation of low real interest rates during periods of high temporary government purchases, such as wars, can be reconciled with the neoclassical growth model extended to allow for endogenous time preference. Temporary increases in government purchases lead to a fall in the instantaneous rate of time preference. This may result in rising investment and falling real interest rates along an adjustment path.

Keywords: interest rate; economic growth; economic models (search for similar items in EconPapers)
Pages: 12 pages
Date: 1989
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Journal Article: Government purchases and real interest rates with endogenous time preference (1991)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:749

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