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A Monetary Model of Exchange Rate and Balance of Payments Adjustment

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  • D Nocetti

Abstract

In this note I explore how a non-constant rate of time preference on the part of policymakers affects economic growth. In a simple dynamic general equilibrium model I show that if the incumbent government has a rate of time preference in the form of a quasi-hyperbolic discounting function, tax rates can be substantially higher and economic growth considerably lower than the standard case of exponential discounting.

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Article provided by Economic Issues in its journal Economic Issues.

Volume (Year): 11 (2006)
Issue (Month): 1 (March)
Pages: 25-36

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Handle: RePEc:eis:articl:106nocetti

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  1. Robert J. Barro, 1999. "Ramsey Meets Laibson In The Neoclassical Growth Model," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1125-1152, November.
  2. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  3. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
  4. Daniel J. Benjamin & David I. Laibson, 2003. "Good policies for bad governments: behavioral political economy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 48(Jun).
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