Tom Kompas () (Asia Pacific School of Economics and Government, Australian National University) Omar Abdel-Razeq (Department of Economics, An-Najah National University, Nablus, Palestine)
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This paper constructs a simple optimal monetary growth model in which an endogenous and variable rate of time preference provides a rational foundation for a Tobin-effect in a system where otherwise strong neoclassical assumptions (e.g., perfect foresight, an infinite planning horizon, and continuous marketclearing) are maintained. Changes in the proportional rate of growth of the nominal money supply affect both the rate of time preference (ñ) and the equilibrium capital—labour ratio. The impact effect of a fall in ñ (less impatience), and the induced capital accumulation that goes with it, drives the result. Proper transformation rules for two-state variable control problems and curvature and simulation results for the rate of time preference function are also established. The latter in particular provides a reasonable and easily understood foundation for simple systems in which the rate of time preference depends on an index of future consumption, and provides a counter-argument to well-known criticisms (e.g., Blanchard and Fischer (1989) and Barro and Sali-i-Martin (1995)) of Epstein—Uzawa rate of time preference functions. All results are obtained in an analytically simple way, using standard techniques.
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Publisher Info
Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number
582.
Length: 21 pages Date of creation: Oct 2001 Date of revision: Handle: RePEc:eab:financ:582
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Find related papers by JEL classification: C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving E1 - Macroeconomics and Monetary Economics - - General Aggregative Models E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates O42 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Shi, Shouyong & Epstein, Larry G, 1993.
"Habits and Time Preference,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 61-84, February.
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Calvo, Guillermo A, 1979.
"On Models of Money and Perfect Foresight,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(1), pages 83-103, February.
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