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Fève, Patrick
, Moura, Alban and Pierrard, Olivier
(2018)
Predetermined Interest Rates in a Analytical RBC model.
Economics Letters, 172.
pp. 12-15.
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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: | Article |
|---|---|
| Language: | English |
| Date: | November 2018 |
| Refereed: | Yes |
| 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) |
| Site: | UT1 |
| Date Deposited: | 09 Nov 2018 10:48 |
| Last Modified: | 02 Apr 2021 15:58 |
| OAI Identifier: | oai:tse-fr.eu:33075 |
| URI: | https://publications.ut-capitole.fr/id/eprint/26411 |
Available Versions of this Item
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Predetermined Interest Rates in a Analytical RBC model. (deposited 20 Sep 2018 10:23)
- Predetermined Interest Rates in a Analytical RBC model. (deposited 09 Nov 2018 10:48) [Currently Displayed]
