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Time Preference and Cyclical Endogenous Growth in an AK Growth Model

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  • Orlando Gomes

    (Escola Superior de Comunicação Social, IPL; UNIDE/ISCTE – ERC)

Abstract

The paper develops an AK endogenous growth model with an endogenously determined rate of intertemporal preference. Following some of the related literature, we assume that the degree of impatience that is revealed by the representative agent, regarding future consumption, depends on income. To be precise, the proposed framework establishes a link between the output gap and the discount rate attached to the sequence of future utility functions. We analyze both local and global dynamics. From a local analysis point of view, a variety of stability results is possible to obtain, depending on parameter values. The study of global dynamics allows finding endogenous business cycles in the circumstance in which the representative agent overlooks one essential requirement for optimality. On a second stage, the model is extended to include the role of leisure and, in this case, endogenous fluctuations are compatible with full rationality.

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Bibliographic Info

Article provided by Faculdade de Economia, Universidade de Coimbra in its journal Notas Económicas.

Volume (Year): (2008)
Issue (Month): 28 (December)
Pages: 32-55

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Handle: RePEc:gmf:journl:y:2008:i:28:p:32-55

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  1. Caballe, Jordi & Jarque, Xavier & Michetti, Elisabetta, 2006. "Chaotic dynamics in credit constrained emerging economies," Journal of Economic Dynamics and Control, Elsevier, vol. 30(8), pages 1261-1275, August.
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  3. Meng, Qinglai, 2006. "Impatience and equilibrium indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2671-2692, December.
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  10. Guo, Jang-Ting & Lansing, Kevin J., 2002. "Fiscal Policy, Increasing Returns, And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 6(05), pages 633-664, November.
  11. Drugeon, Jean-Pierre, 1996. "Impatience and long-run growth," Journal of Economic Dynamics and Control, Elsevier, vol. 20(1-3), pages 281-313.
  12. Epstein, Larry G., 1987. "A simple dynamic general equilibrium model," Journal of Economic Theory, Elsevier, vol. 41(1), pages 68-95, February.
  13. Nishimura, Kazuo & Sorger, Gerhard & Yano, Makoto, 1994. "Ergodic Chaos in Optimal Growth Models with Low Discount Rates," Economic Theory, Springer, vol. 4(5), pages 705-17, August.
  14. Medio,Alfredo & Lines,Marji, 2001. "Nonlinear Dynamics," Cambridge Books, Cambridge University Press, number 9780521551861, October.
  15. Palivos, Theodore & Wang, Ping & Zhang, Jianbo, 1997. "On the Existence of Balanced Growth Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 205-24, February.
  16. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
  17. Jean-Pierre Drugeon, 1998. "A model with endogenously determined cycles, discounting and growth," Economic Theory, Springer, vol. 12(2), pages 349-369.
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