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Indeterminacy In A Log-Linearized Neoclassical Rowth Model With Quasi-Geometric Discounting

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Listed:
  • Lilia Maliar

    (Universidad de Alicante)

  • Serguei Maliar

    (Universidad de Alicante)

Abstract

This paper studies the properties of solutions to a log-linearized version of the neoclassical growth model with quasi-geometric discounting. We show that after the log-linearization, the model has indeterminacy and multiplicity of equilibria even though the original non-linear model has a unique interior solution. Specifically, in both the deterministic and stochastic cases, the log-linearized model has a continuum of steady states. In the deterministic case, there is a unique log-linear policy function leading to each steady state, while in the stochastic case, there is a continuum of log-linear policy functions, associated with each steady state. Hence, the standard log-linearization method cannot be applied for solving models with quasi-geometric discounting.

Suggested Citation

  • Lilia Maliar & Serguei Maliar, 2003. "Indeterminacy In A Log-Linearized Neoclassical Rowth Model With Quasi-Geometric Discounting," Working Papers. Serie AD 2003-13, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2003-13
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    References listed on IDEAS

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    Cited by:

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    2. Richard Dennis & Oleg Kirsanov, 2020. "Monetary Policy when Preferences are Quasi-Hyperbolic," Working Papers 2020_05, Business School - Economics, University of Glasgow.

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    More about this item

    Keywords

    quasi-geometric (quasi-hyperbolic) discounting; time inconsistency; neoclassical growth model;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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