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Endogenous discounting via wealth, twin-peaks and the role of technology

  • SCHUMACHER, Ingmar

The article gives new answers to the two following questions: One, what can be a potential source of the twin-peaks of economic growth? Two, why were some of the countries that were believed to belong to the group of low steady state countries (like Taiwan, South Korea, Japan, etc.) able to reach a convergence path which led them to a high steady state? We endogenize the time preference rate via a broad measure of wealth and provide empirical evidence that wealth affects the discount rate negatively. We provide sufficient conditions for multiplicity of equilibria and demonstrate how endogenous discounting via wealth leads to the twin-peaks of economic growth. We prove that improvements in technology can help avoid the Twin-Peaks.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2006104.

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Date of creation: 00 Nov 2006
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Handle: RePEc:cor:louvco:2006104
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