Intertemporal Dependence, Impatience, and Dynamics

48 Pages Posted: 17 Oct 2007

See all articles by Maurice Obstfeld

Maurice Obstfeld

University of California, Berkeley; Peterson Institute for International Economics; National Bureau of Economic Research; Centre for Economic Policy Research

Date Written: July 1989

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.

Suggested Citation

Obstfeld, Maurice, Intertemporal Dependence, Impatience, and Dynamics (July 1989). NBER Working Paper No. w3028. Available at SSRN: https://ssrn.com/abstract=463468

Maurice Obstfeld (Contact Author)

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Centre for Economic Policy Research ( email )

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