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A simple monetary growth model with variable rates of time preference

Kompas, Tom; Abdel-Razeq, Omar

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This paper constructs a simple optimal monetary growth model in which an endogenous and variable rate of time preference provides a rational foundation for a Tobin-effect in a system where otherwise strong neoclassical assumptions (e.g., perfect foresight, an infinite planning horizon, and continuous marketclearing) are maintained. Changes in the proportional rate of growth of the nominal money supply affect both the rate of time preference (ñ) and the equilibrium capital—labour ratio. The...[Show more]

dc.contributor.authorKompas, Tom
dc.contributor.authorAbdel-Razeq, Omar
dc.date.accessioned2010-10-31T22:59:08Z
dc.date.accessioned2011-04-19T01:07:14Z
dc.date.available2010-10-31T22:59:08Z
dc.date.available2011-04-19T01:07:14Z
dc.identifier.citationKompas, T. & Abdel-Razeq, O. (2001). A simple monetary growth model with variable rates of time preference. International and Development Economics Paper 01-10. Canberra, ACT: Crawford School of Economics and Government, The Australian National University.
dc.identifier.otherJEL Classification: C61, D91, E1, E4, O42
dc.identifier.urihttp://hdl.handle.net/10440/1229
dc.description.abstractThis paper constructs a simple optimal monetary growth model in which an endogenous and variable rate of time preference provides a rational foundation for a Tobin-effect in a system where otherwise strong neoclassical assumptions (e.g., perfect foresight, an infinite planning horizon, and continuous marketclearing) are maintained. Changes in the proportional rate of growth of the nominal money supply affect both the rate of time preference (ñ) and the equilibrium capital—labour ratio. The impact effect of a fall in ñ (less impatience), and the induced capital accumulation that goes with it, drives the result. Proper transformation rules for two-state variable control problems and curvature and simulation results for the rate of time preference function are also established. The latter in particular provides a reasonable and easily understood foundation for simple systems in which the rate of time preference depends on an index of future consumption, and provides a counter-argument to well-known criticisms (e.g., Blanchard and Fischer (1989) and Barro and Sali-i-Martin (1995)) of Epstein—Uzawa rate of time preference functions. All results are obtained in an analytically simple way, using standard techniques.
dc.format.extent21 pages
dc.format.mimetypeapplication/pdf
dc.language.isoen_AU
dc.publisherCrawford School of Economics and Government, The Australian National University
dc.rightsAuthor/s retain copyright
dc.source.urihttp://www.crawford.anu.edu.au/degrees/idec/working_papers/IDEC01-10.pdf
dc.subjectvariable rates of time preference
dc.subjectUzawa’s transformation
dc.subjectTobineffect
dc.subjectoptimal monetary growth
dc.titleA simple monetary growth model with variable rates of time preference
dc.typeWorking/Technical Paper
dc.date.issued2001
local.publisher.urlhttp://www.crawford.anu.edu.au
local.type.statusPublished version
dcterms.accessRightsOpen Access
dc.provenancePermission granted to archive the paper and make it publically available
CollectionsANU Crawford School of Public Policy

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