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Journal of Economics

, Volume 126, Issue 2, pp 153–177 | Cite as

Endogenous time preference, consumption externalities, and trade: multiple steady states and indeterminacy

  • Akihiko YanaseEmail author
  • Yukio Karasawa-Ohtashiro
Article
  • 103 Downloads

Abstract

This study presents a two-sector dynamic general equilibrium model with capital accumulation and discusses the role of endogenous time preference and consumption externalities in closed and small open economies. While the economy has a unique and saddle-point stable steady state under autarky, under free trade with decreasing marginal impatience (i.e., a household’s discount rate is a decreasing function of its consumption), there might exist multiple steady states and indeterminacy of equilibrium paths. Specifically, if the degree of decreasing marginal impatience is sufficiently large and individuals’ preferences exhibit admiration, the dynamic equilibria with diversified production might become indeterminate. We also analyze the economy’s long-run trade pattern and its relationship with indeterminacy.

Keywords

Endogenous time preference Consumption externality Dynamic Heckscher–Ohlin model Multiple steady states Indeterminacy 

JEL Classification

D11 D62 E32 F43 

Notes

Acknowledgements

We thank Takumi Naito, Seiichi Katayama, Henry Wan Jr., Been-Lon Chen, Hiroshi Ohta, Laixun Zhao, Junko Doi, Rui Ota, Kazuo Nishimura, Fumio Dei, Ronald Jones, Hajime Kubota, Ichiroh Daitoh, Hiroto Takahashi, Ngo Van Long, Akira Yakita, Jun-ichi Itaya, seminar and conference participants, three anonymous referees and the editor Giacomo Corneo for their helpful comments and suggestions on earlier versions of this paper. We also gratefully acknowledge the Japan Society for the Promotion of Science (JSPS) for its financial support (No. 16H03612, No. 16K03677, No. 17K03731).

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Copyright information

© Springer-Verlag GmbH Austria, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Graduate School of EconomicsNagoya UniversityNagoyaJapan
  2. 2.Department of EconomicsMcGill UniversityMontrealCanada
  3. 3.Faculty of EconomicsNanzan UniversityShowa-kuJapan

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