On Impatience and Policy Effectiveness

30 Pages Posted: 11 Mar 2009

See all articles by Silvia Sgherri

Silvia Sgherri

International Monetary Fund (IMF)

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Date Written: Janurary 2009

Abstract

An increasing body of evidence suggests that the behavior of the economy has changed in many fundamental ways over the last decades. In particular, greater financial deregulation, larger wealth accumulation, and better policies might have helped lower uncertainty about future income and lengthen private sectors' planning horizon. In an overlapping-generations model, in which individuals discount the future more rapidly than implied by the market rate of interest, we find indeed evidence of a falling degree of impatience, providing empirical support for this hypothesis. The degree of persistence of "windfall" shocks to disposable income also appears to have varied over time. Shifts of this kind are shown to have a key impact on the average marginal propensity to consume and on the size of policy multipliers.

Keywords: Fiscal policy, Income distribution, Private sector, Interest rates, Monetary policy, Consumption, Economic models

Suggested Citation

Sgherri, Silvia and Bayoumi, Tamim, On Impatience and Policy Effectiveness (Janurary 2009). IMF Working Papers, Vol. , pp. 1-28, 2009. Available at SSRN: https://ssrn.com/abstract=1356445

Silvia Sgherri (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Tamim Bayoumi

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6333 (Phone)
202-623-4795 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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