Uniqueness and Stability of a Dynastic Economy with Endogenous Time Preferences
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This study considers a dynamic competitive general equilibrium when time preferences in life-cycle utility are endogenous. In an economy with overlapping generations, we postulate that each household’s time preferences are not only influenced by the parent’s consumption and savings behavior in a dynastic intergenerational environment, but also affected by external consumption habits in young cohort households in an intragenerational environment. This paper shows the existence, uniqueness, and stability of the dynastic competitive economy with endogenous time preferences. First, the effect of these consumption externalities on the individual’s time preferences generates the existence of multiple equilibrium paths. This suggests the possibility of income equalities among households in a dynamic competitive economy. Second, we also identify the conditions needed for a unique balanced growth path and a stable transitional path. Third, we study the dynamics of a transitional path based around a steady state and demonstrate the possibility of saddle stabilities and stable spirals, thus suggesting the existence of endogenous business cycles.
Abstract
This study considers a dynamic competitive general equilibrium when time preferences in life-cycle utility are endogenous. In an economy with overlapping generations, we postulate that each household’s time preferences are not only influenced by the parent’s consumption and savings behavior in a dynastic intergenerational environment, but also affected by external consumption habits in young cohort households in an intragenerational environment. This paper shows the existence, uniqueness, and stability of the dynastic competitive economy with endogenous time preferences. First, the effect of these consumption externalities on the individual’s time preferences generates the existence of multiple equilibrium paths. This suggests the possibility of income equalities among households in a dynamic competitive economy. Second, we also identify the conditions needed for a unique balanced growth path and a stable transitional path. Third, we study the dynamics of a transitional path based around a steady state and demonstrate the possibility of saddle stabilities and stable spirals, thus suggesting the existence of endogenous business cycles.
참고문헌 (30)
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