Endogenous time preference: evidence from Australian households’ behaviour

Abstract

Recently, the focus has been increasingly on the importance of endogenous time preference and its varying degrees of marginal impatience. Two types of marginal impatience can change the representative household's endogenous discount function: increasing (Koopmans-Uzawa type) and decreasing (Becker-Mulligan type), which are induced by current consumption and the investment on future-oriented capital, respectively. By modifying the endogenous discount factor in a small-open-economy RBC model, the equilibrium levels of the turnover in future-oriented capital and current consumption are obtained in a reduced form, which overcomes the non- stationarity problem. The relation between current consumption and the turnover in future-oriented capital is consistent with the empirical evidence from Australia.