The Ideal Inflation Indexed Bond and Irving Fisher's Impatience Theory of Interest in an Overlapping Generations World

41 Pages Posted: 23 Jul 2003

See all articles by John Geanakoplos

John Geanakoplos

Yale University - Cowles Foundation

Date Written: July 2003

Abstract

Irving Fisher long advocated inflation indexed bonds. I prove in the context of a multicommodity CAPM world that the best welfare improving bond pays the minimum money needed to achieve the same utility, and not the minimum needed to buy an ideal commodity bundle. Irving Fisher also developed and advocated the impatience theory of interest. But in OLG economies, the rate of interest is determined by population growth, not impatience. I reconcile this contradiction by proving that in stationary OLG economies with land, the interest rate at the unique steady state does depend on impatience. Indeed, the proposition that greater impatience creates higher interest rates holds more generally in OLG with land than in Fisher's two-period model.

Keywords: Impatience, Theory of interest, Inflation indexed bond, Konus index, Capital asset pricing, Efficiency, Overlapping generations, Land

JEL Classification: B22, B23, B31, D11, D52, D91, E31, E43, G12

Suggested Citation

Geanakoplos, John D, The Ideal Inflation Indexed Bond and Irving Fisher's Impatience Theory of Interest in an Overlapping Generations World (July 2003). Cowles Foundation Discussion Paper No. 1429. Available at SSRN: https://ssrn.com/abstract=426822

John D Geanakoplos (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3397 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://cowles.econ.yale.edu/P/au/d_gean.htm

Register to save articles to
your library

Register

Paper statistics

Downloads
302
Abstract Views
2,860
rank
100,059
PlumX Metrics