Indeterminacy In A Log-Linearized Neoclassical Rowth Model With Quasi-Geometric Discounting
AbstractThis paper studies the properties of solutions to a log-linearized version of the neoclassical growth model with quasi-geometric discounting. We show that after the log-linearization, the model has indeterminacy and multiplicity of equilibria even though the original non-linear model has a unique interior solution. Specifically, in both the deterministic and stochastic cases, the log-linearized model has a continuum of steady states. In the deterministic case, there is a unique log-linear policy function leading to each steady state, while in the stochastic case, there is a continuum of log-linear policy functions, associated with each steady state. Hence, the standard log-linearization method cannot be applied for solving models with quasi-geometric discounting.
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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2003-13.
Length: 20 pages
Date of creation: Apr 2003
Date of revision:
Publication status: Published by Ivie
quasi-geometric (quasi-hyperbolic) discounting; time inconsistency; neoclassical growth model;
Other versions of this item:
- Maliar, Lilia & Maliar, Serguei, 2006. "Indeterminacy in a log-linearized neoclassical growth model with quasi-geometric discounting," Economic Modelling, Elsevier, vol. 23(3), pages 492-505, May.
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D90 - Microeconomics - - Intertemporal Choice and Growth - - - General
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
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