Monetary Non-Superneutrality and Endogenous Time Preference in an Infinitely Lived, Representative Agent Model

This model demonstrates a restatement of the Mundell-Tobin effect and monetary non-superneutrality using an infinitely lived, representative agent model. The rate of time preference is assumed to be an increasing function of the total value of current financial wealth. An increase in the monetary growth rate reduces the value of real assets and the rate of time preference, which raises savings, consumption and the capital stock. This model offers an optimizing equivalent to descriptive models that assume savings are a decreasing function of wealth. This confirms Epstein and Hynes' intuition without being prone to the counterintuitive assumptions of Uzawa.