Intertemporal Dependence, Impatience, and Dynamics
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.
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