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Government Purchases and Real Interest Rates with Endogenous Time Preference

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  • 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.

Suggested Citation

  • Michael B. Devereux, 1989. "Government Purchases and Real Interest Rates with Endogenous Time Preference," Working Papers 749, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:749
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    Cited by:

    1. 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.
    2. 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.
    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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