Open AccessENDOGENOUS TIME PREFERENCE, INTEREST‐RATE RULES, AND INDETERMINACY *
Author(s) -
CHANG WENYA,
TSAI HSUEHFANG,
CHANG JUINJEN
Publication year - 2011
Publication title -
the japanese economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.205
H-Index - 28
eISSN - 1468-5876
pISSN - 1352-4739
DOI - 10.1111/j.1468-5876.2011.00540.x
Subject(s) - indeterminacy (philosophy) , economics , time preference , preference , interest rate , mathematical economics , consumption (sociology) , monetary policy , microeconomics , econometrics , keynesian economics , monetary economics , social science , physics , quantum mechanics , sociology
This paper extends the Benhabib et al . flexible‐price, money‐in‐the‐utility‐function model by considering endogenous time preference and re‐examines equilibrium indeterminacy in response to alternative interest‐rate rules. We show that either an active or a passive interest‐rate feedback rule can generate local indeterminacy even if consumption and real money balances are Edgeworth independent. This result is in sharp contrast to that in the related literature. We also find that in the presence of endogenous time preference, local indeterminacy may occur regardless of whether the monetary policy is based on the interest‐rate feedback rule or money growth‐rate targeting.