Taste and productivity shocks in an intertemporal model of a decentralized closed economy composed by finite-life consumers

Abstract

The purpose of the present paper is to expose a particular version of this model that enables us to study some long run issues for a closed economy: technology shocks and taste changes. It does not deal directly with current macroeconomic issues as other essays do. However it extends previous models by incorporating: i) the possibility of population change, i.e., that instantaneous birth and death rates can differ, as in BUITER (1988.a); ii) a theory of investment based upon adjustment costs that allows for an independence between saving and investment demand behaviors (vg. note of p.2) In Section 2 we set and solve the households' and firms' problems. In section 3 the dynamic behavior is analysed following productivity and taste changes. Section 4 concludes the paper.