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Time inconsistency and the long-run effects of inflation

Author

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  • Boulware, Karl David
  • Reed, Robert R.
  • Ume, Ejindu

Abstract

Recent work by Laibson (1997) identifies that individuals’ time discount factors evolve over time. This leads to a time-inconsistency problem in which savings are distorted. This paper studies the long-run effects of inflation in the presence of a time-inconsistency problem.

Suggested Citation

  • Boulware, Karl David & Reed, Robert R. & Ume, Ejindu, 2013. "Time inconsistency and the long-run effects of inflation," Economics Letters, Elsevier, vol. 120(2), pages 267-270.
    • Handle: RePEc:eee:ecolet:v:120:y:2013:i:2:p:267-270
    DOI: 10.1016/j.econlet.2013.04.047
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    References listed on IDEAS

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    1. By Mohsin S. Khan & Abdelhak S. Senhadji, 2001. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 1-1.
    2. Krusell, Per & Kuruscu, Burhanettin & Smith, Anthony Jr., 2002. "Equilibrium Welfare and Government Policy with Quasi-geometric Discounting," Journal of Economic Theory, Elsevier, vol. 105(1), pages 42-72, July.
    3. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    4. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
    5. Michael Sarel, 1996. "Nonlinear Effects of Inflation on Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 199-215, March.
    6. Robert J. Barro, 1996. "Inflation and growth," Proceedings, Federal Reserve Bank of St. Louis, vol. 78(May), pages 153-169.
    7. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
    8. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
    9. Li, Victor E, 1995. "The Optimal Taxation of Fiat Money in Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 927-942, November.
    10. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    Citations

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    Cited by:

    1. Maeda, Daiki, 2018. "Quasi-geometric discounting in cash-in-advance economy," Journal of Mathematical Economics, Elsevier, vol. 79(C), pages 51-56.
    2. Futagami, Koichi & Maeda, Daiki, 2023. "Naïve agents with non-unitary discounting rate in a monetary economy," Journal of Macroeconomics, Elsevier, vol. 78(C).
    3. Daiki Maeda, 2018. "Monetary and Fiscal Policy in a Cash-in-advance Economy with Quasi-geometric Discounting," Discussion Papers in Economics and Business 18-31, Osaka University, Graduate School of Economics.

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    More about this item

    Keywords

    Inflation; Hyperbolic discounting; Time inconsistency;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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