Working Paper: NBER ID: w3028
Authors: Maurice Obstfeld
Abstract: This paper develops simple geometric methods for analyzing dynamic behavior in models with intertemporally dependent consumer tastes. Since the preferences studied do not assume time-additivity, they allow the marginal utility of consumption on a given date to vary with consumption on other dates. Intertemporal dependence is induced by the presence of a variable individual rate of time preference. The optimal consumption responses to transitory and anticipated changes in incomes and interest rates are easily derived and are similar in important ways to the responses implied by the standard model with constant time preference. Intuitive explanations of the first-order conditions describing optimal paths are provided.
Keywords: intertemporal dependence; consumer tastes; dynamic behavior; time preference
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Variable individual rates of time preference (D15) | Current and future consumption decisions (D15) |
| Intertemporal dependence (D15) | Marginal utility of consumption at any given time (D11) |
| Intertemporal dependence (D15) | Optimal consumption responses to changes in income and interest rates (D11) |
| Optimal consumption responses to changes in income and interest rates (D11) | Similar to traditional models (C59) |