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On Decreasing Marginal Impatience, Stability and Monetary Policy in a Sidrauskian Economy
Author(s) -
Daway Sarah Lynne Salvador
Publication year - 2018
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/meca.12170
Subject(s) - economics , nexus (standard) , monetary economics , inflation (cosmology) , capital (architecture) , monetary policy , endogenous growth theory , stability (learning theory) , macroeconomics , keynesian economics , human capital , market economy , physics , archaeology , machine learning , theoretical physics , computer science , history , embedded system
This paper analyzes the long‐run dynamics with which decreasing marginal impatience (DMI) is consistent with a saddle‐path equilibrium in a Sidrauskian economy. With exogenous growth, this occurs with a strong substitutability between capital and money. Otherwise, diminishing returns to capital have to be stronger than in a nonmonetary setting if capital and money are complements. With endogenous growth, saddle‐path stability ensues when the rate of time preference—the rate at which “impatience” is increasing—exceeds the rate at which the real economy is growing along a balanced growth path. Two monetary implications also emerge. One, DMI can be consistent with both a negative and positive long‐run inflation‐growth nexus. Two, under capital‐money substitutability, the Friedman optimal rule might even fail to hold.