Recursive preferences and balanced growth |
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Authors: | Roger EA Farmer Amartya Lahiri |
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Institution: | a Department of Economics, University of California, 8283 Bunche Hall, Los Angeles, CA 90095-1477, USA b CEPR, London, UK c Federal Reserve Bank of New York, USA |
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Abstract: | We study a class of utility functions that are defined recursively by an aggregator W(x,y) where ut=W(ct,ut+1). In single-agent economies it is known that a sufficient condition for the existence of a balanced growth path is that utility should be homogenous of degree γ. In the context of a multi-agent economy we show that this restriction implies that either a balanced growth equilibrium fails to exist or all agents have the same constant discount factor. We suggest a generalization of recursive preferences wherein the intertemporal utility function is time dependent. Within this class we establish that there may exist a balanced growth equilibrium even if agents are different. |
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Keywords: | D50 D90 F43 |
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