Some Implications of a Variable EIS
AbstractThe paper examines some implications of the wholly reasonable assumption that the elasticity of intertemporal substitution (the EIS) increases with the level of consumption. Then the rich find it easier to substitute future consumption for present consumption than do the poor. In the empirical macro-economics literature the same assumption has been employed and vindicated in cross-section analysis by Attansio and Browning (1995). Here the approach is to build theoretical models of two kinds of poverty traps. A family of explicit direct utility functions that yield the required property is exhibited. Members of this family can give weak b-convergence in a Ramsey-style growth model, or multiple stable solutions in the Diamond capital model. The last finding is in strong contrast to the monograph De La Croix (2002), which leaves the impression that multiple stable solutions are unlikely.
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Bibliographic InfoPaper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2004-W26.
Length: 10 pages
Date of creation: 01 Nov 2004
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Web page: http://www.nuff.ox.ac.uk/economics/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-12-12 (All new papers)
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- Orlando Gomes, 2009.
"Stability Analysis in a Monetary Model With a Varying Intertemporal Elasticity of Substitution,"
The IUP Journal of Monetary Economics,
IUP Publications, vol. 0(2), pages 32-41, May.
- Gomes, Orlando, 2007. "Stability analysis in a monetary model with a varying intertemporal elasticity of substitution," MPRA Paper 2890, University Library of Munich, Germany.
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