On Impatience and Policy Effectiveness

January 1, 2009

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Format: Chicago

Silvia Sgherri, and Tamim Bayoumi. On Impatience and Policy Effectiveness, (USA: International Monetary Fund, 2009) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

An increasing body of evidence suggests that the behavior of the economy has changed in many fundamental ways over the last decades. In particular, greater financial deregulation, larger wealth accumulation, and better policies might have helped lower uncertainty about future income and lengthen private sectors' planning horizon. In an overlapping-generations model, in which individuals discount the future more rapidly than implied by the market rate of interest, we find indeed evidence of a falling degree of impatience, providing empirical support for this hypothesis. The degree of persistence of "windfall" shocks to disposable income also appears to have varied over time. Shifts of this kind are shown to have a key impact on the average marginal propensity to consume and on the size of policy multipliers.

Subject: Consumption, Expenditure, Financial services, Income, National accounts, Personal income, Real interest rates

Keywords: Consumption, Consumption equation, Cross-equation restriction, Discount Rate, Fiscal Policy, Global, Government spending equation, Income, Income equation, Labor income, Overlapping Generations Model, Personal income, Planning horizon, Policy multiplier, Policy shock, Real interest rate, Real interest rates, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/018
Stock No:

WPIEA2009018
ISBN:

9781451871654
ISSN:

1018-5941

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