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Time Preference and Cyclical Endogenous Growth in an AK Growth Model

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Author Info
Orlando Gomes (Escola Superior de Comunicação Social, IPL; UNIDE/ISCTE – ERC)

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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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Publisher 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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Find related papers by JEL classification:
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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  1. Drugeon, Jean-Pierre, 1996. "Impatience and long-run growth," Journal of Economic Dynamics and Control, Elsevier, vol. 20(1-3), pages 281-313. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. Cellarier, Laurent, 2006. "Constant gain learning and business cycles," Journal of Macroeconomics, Elsevier, vol. 28(1), pages 51-85, March. [Downloadable!] (restricted)
  4. Boldrin, Michele & Nishimura, Kazuo & Shigoka, Tadashi & Yano, Makoto, 2001. "Chaotic Equilibrium Dynamics in Endogenous Growth Models," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 97-132, January. [Downloadable!] (restricted)
  5. Meng, Qinglai, 2006. "Impatience and equilibrium indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2671-2692, December. [Downloadable!] (restricted)
  6. Epstein, Larry G., 1987. "A simple dynamic general equilibrium model," Journal of Economic Theory, Elsevier, vol. 41(1), pages 68-95, February. [Downloadable!] (restricted)
  7. 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.
  8. Christiano, Lawrence J. & G. Harrison, Sharon, 1999. "Chaos, sunspots and automatic stabilizers," Journal of Monetary Economics, Elsevier, vol. 44(1), pages 3-31, August. [Downloadable!] (restricted)
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  9. 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.
  10. Becker, Gary S & Mulligan, Casey B, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 729-58, August.
  11. 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. [Downloadable!] (restricted)
  12. Balasko Yves & Ghiglino Christian, 1995. "On the Existence of Endogenous Cycles," Journal of Economic Theory, Elsevier, vol. 67(2), pages 566-577, December. [Downloadable!] (restricted)
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  13. Nishimura, Kazuo & Yano, Makoto, 1995. "Nonlinear Dynamics and Chaos in Optimal Growth: An Example," Econometrica, Econometric Society, vol. 63(4), pages 981-1001, July. [Downloadable!] (restricted)
  14. 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. [Downloadable!]
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