A Monetary Model for Analyzing Time Preference and Economic Stability

In this paper, we´ll consider an infinite and continuous time model, based upon the analysis of Meng(2006) to check how the impatience affects the economic stability, by postulating that individual agents´ time preference (impatience) depends on the economy-wide total income, average consumption and money balance, which are social factors taken as external by individual agents. We assume that labor supply is inelastic and the role that physical capital plays in stabilizing the real side of the economy by ensuring uniqueness of equilibrium in alternative environments if the monetary authority follows interest-rate feedback rules. The paper shows that with the socially determined individual time preference, the macroeconomic stability of the long run equilibrium can arise under a set of sufficient conditions which is derived in this context.