A Monetary Model of Exchange Rate and Balance of Payments Adjustment
In this note I explore how a non-constant rate of time preference on the part of policymakers affects economic growth. In a simple dynamic general equilibrium model I show that if the incumbent government has a rate of time preference in the form of a quasi-hyperbolic discounting function, tax rates can be substantially higher and economic growth considerably lower than the standard case of exponential discounting.
Volume (Year): 11 (2006)
Issue (Month): 1 (March)
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- Sergio T. Rebelo, 1990.
"Long Run Policy Analysis and Long Run Growth,"
NBER Working Papers
3325, National Bureau of Economic Research, Inc.
- Daniel J. Benjamin & David I. Laibson, 2003. "Good policies for bad governments: behavioral political economy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 48(Jun).
- Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
- Robert J. Barro, 1999. "Ramsey Meets Laibson in the Neoclassical Growth Model," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1125-1152.
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