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Government Purchases and Real Interest Rates with Endogenous Time Preference

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Author Info

  • Michael B. Devereux

Abstract

This note shows that the observation of low real interest rates during periods of high temporary government purchases, such as wars, can be reconciled with the neoclassical growth model extended to allow for endogenous time preference. Temporary increases in government purchases lead to a fall in the instantaneous rate of time preference. This may result in rising investment and falling real interest rates along an adjustment path.

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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 749.

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Length: 12 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:qed:wpaper:749

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Keywords: interest rate ; economic growth ; economic models;

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Cited by:
  1. Gootzeit, Michael & Schneider, Johannes & Smith, William, 2002. "Marshallian recursive preferences and growth," Journal of Economic Behavior & Organization, Elsevier, vol. 49(3), pages 381-404, November.
  2. Chang, Wen-ya, 1999. "Government spending, endogenous labor, and capital accumulation," Journal of Economic Dynamics and Control, Elsevier, vol. 23(8), pages 1225-1242, August.
  3. Das, Mausumi, 2003. "Optimal growth with decreasing marginal impatience," Journal of Economic Dynamics and Control, Elsevier, vol. 27(10), pages 1881-1898, August.

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