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Intertemporally dependent preferences and optimal dynamic behavior

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  • Tapan Mitra
  • Kazuo Nishimura

Abstract

We study a model of optimal dynamic behavior in which the intertemoral preferences preserve the time additively separable framework of Ramsey models, while exhibiting Edgeworth–Pareto complementarity between consumption in adjacent periods. We identify economic environments in which global optimal dynamics under intertemporal complementarity exhibits persistent fluctuations even though the misspecified Ramsey‐type theory, under the intertemporal independence assumption, predicts monotone convergence.

Suggested Citation

  • Tapan Mitra & Kazuo Nishimura, 2006. "Intertemporally dependent preferences and optimal dynamic behavior," International Journal of Economic Theory, The International Society for Economic Theory, vol. 2(2), pages 77-104, June.
    • Handle: RePEc:bla:ijethy:v:2:y:2006:i:2:p:77-104
    DOI: 10.1111/j.1742-7363.2006.00025.x
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