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On Impatience and Policy Effectiveness

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  • Silvia Sgherri
  • Tamim Bayoumi

Abstract

An increasing body of evidence suggests that the behavior of the economy has changed in many fundamental ways over the last decades. In particular, greater financial deregulation, larger wealth accumulation, and better policies might have helped lower uncertainty about future income and lengthen private sectors'' planning horizon. In an overlapping-generations model, in which individuals discount the future more rapidly than implied by the market rate of interest, we find indeed evidence of a falling degree of impatience, providing empirical support for this hypothesis. The degree of persistence of "windfall" shocks to disposable income also appears to have varied over time. Shifts of this kind are shown to have a key impact on the average marginal propensity to consume and on the size of policy multipliers.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/18.

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Length: 28
Date of creation: 01 Jan 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/18

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Keywords: Income distribution; Interest rates; Economic models; equation; labor income; real interest rate; disposable income; aggregate consumption; government spending; random walk; statistic; cointegration; statistics; private consumption; consumption function; aggregate income; probability; time series; level of consumption; marginal propensity to consume; permanent income; consumption equation; equations; consumption plans; permanent income hypothesis; logarithm; income growth; predictions; income changes; standard error; stochastic processes; significance level; consumption model; stochastic process; samples; consumption level; standard errors; lifetime consumption; instrumental variables; correlation; the marginal propensity to consume; econometrics; statistical significance; consumption smoothing; disposable labor income; current income; income process; general equilibrium model; statistical support; general equilibrium; sample mean; consumption decision;

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References

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    • Ioan Carabenciov & Charles Freedman & Roberto Garcia-Saltos & Douglas Laxton & Ondra Kamenik & Petar Manchev, 2013. "Gpm6," IMF Working Papers 13/87, International Monetary Fund.
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