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Fève, Patrick
, Moura, Alban and Pierrard, Olivier
(2018)
Predetermined Interest Rates in a Analytical RBC model.
TSE Working Paper, n. 18-954, Toulouse
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Abstract
We solve a version of the analytical Real Business Cycle (RBC) model with a predetermined rate of return on household saving. The solution differs from that of the benchmark RBC model along two dimensions: (i) Policy functions depend on the variance of the technology shock. (ii) There is a suboptimal pattern of excess saving. We discuss the economic intuition underlying these properties. We also demonstrate that unconditional welfare can be higher in the suboptimal model with predetermined interest rates, providing a clear illustration of the pitfall with unconditional welfare comparisons.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Language: | English |
| Date: | September 2018 |
| Place of Publication: | Toulouse |
| Uncontrolled Keywords: | RBC model, predetermined interest rates, over-saving, conditional and unconditional welfare |
| JEL Classification: | E21 - Macroeconomics - Consumption; Saving; Aggregate Physical and Financial Consumer Wealth E32 - Business Fluctuations; Cycles E43 - Determination of Interest Rates; Term Structure of Interest Rates |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse) |
| Institution: | Universtité Toulouse Capitole |
| Site: | UT1 |
| Date Deposited: | 20 Sep 2018 10:23 |
| Last Modified: | 02 Apr 2021 15:58 |
| OAI Identifier: | oai:tse-fr.eu:32949 |
| URI: | https://publications.ut-capitole.fr/id/eprint/26267 |
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