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Endogenous time preference, consumption externalities, and trade: multiple steady states and indeterminacy

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  • Akihiko Yanase

    (Nagoya University
    McGill University)

  • Yukio Karasawa-Ohtashiro

    (Nanzan University)

Abstract

This study presents a two-sector dynamic general equilibrium model with capital accumulation and discusses the role of endogenous time preference and consumption externalities in closed and small open economies. While the economy has a unique and saddle-point stable steady state under autarky, under free trade with decreasing marginal impatience (i.e., a household’s discount rate is a decreasing function of its consumption), there might exist multiple steady states and indeterminacy of equilibrium paths. Specifically, if the degree of decreasing marginal impatience is sufficiently large and individuals’ preferences exhibit admiration, the dynamic equilibria with diversified production might become indeterminate. We also analyze the economy’s long-run trade pattern and its relationship with indeterminacy.

Suggested Citation

  • Akihiko Yanase & Yukio Karasawa-Ohtashiro, 2019. "Endogenous time preference, consumption externalities, and trade: multiple steady states and indeterminacy," Journal of Economics, Springer, vol. 126(2), pages 153-177, March.
  • Handle: RePEc:kap:jeczfn:v:126:y:2019:i:2:d:10.1007_s00712-018-0614-4
    DOI: 10.1007/s00712-018-0614-4
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    Cited by:

    1. Carmelo Pierpaolo Parello, 2021. "Free labor mobility and indeterminacy in models of neoclassical growth," Journal of Economics, Springer, vol. 133(1), pages 27-46, June.

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    More about this item

    Keywords

    Endogenous time preference; Consumption externality; Dynamic Heckscher–Ohlin model; Multiple steady states; Indeterminacy;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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