Intertemporal Dependence, Impatience, and Dynamics

Maurice Obstfeld

NBER Working Paper No. 3028 (Also Reprint No. r1492)
Issued in January 1991
NBER Program(s):   EFG

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.

(354 K)

(233 K)

Published: Journal of Monetary Economics, Vol. 26, pp. 45-75, (1990).

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