Journal Article The Demand for Money and Monetary Adjustments in Chile Get access Allan Hynes Allan Hynes University of Washington Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 34, Issue 3, July 1967, Pages 285–293, https://doi.org/10.2307/2296676 Published: 01 July 1967

Strong restrictions on the structure of preferences are a central feature in the received theory of intertemporal allocation. In fact, most of the modern literature concerned with capital-theoretic problems represents preferences by a functional in which an additive utility function is discounted by a constant rate of time preference. This specification is attractive because it is analytically tractable in dynamic models, and it clearly delineates how tastes and opportunities interact to determine an economy's (household's) paths of consumption and capital formation. However, its rigid structure (constancy of time preference) severely limits the conclusions and explanatory power of the corresponding models. This paper considers a class of utility functionals (in continuous time) which have the appealing feature that the rate of time preference depends systematically on an index of aggregate future consumption. The more flexible structure embodied in these functionals leads to important generalizations and modifications of standard conclusions. We highlight this added richness by examining five basic problems in dynamic economic analysis.

This paper reexamines traditional macrotheoretical questions in models that fully integrate conditions of production into the structure. The relative price of capital and consumer goods and the real rate of interest are required to equal the technical rates of transformation. Capital stocks are immobile between sectors, and increasing marginal costs of introducing new capital goods into the production process are assumed. Given plausible values of the parameters, standard fiscal policies may not change aggregate demand in the directions predicted by the IS-LM approach. And to judge what outcome is most likely requires considerable information about an economy's structure of production.

This paper reexamines traditional macrotheoretical questions in models that fully integrate conditions of production into the structure. The relative price of capital and consumer goods and the real rate of interest are required to equal the technical rates of transformation. Capital stocks are immobile between sectors, and increasing marginal costs of introducing new capital goods into the production process are assumed. Given plausible values of the parameters, standard fiscal policies may not change aggregate demand in the directions predicted by the IS-LM approach. And to judge what outcome is most likely requires considerable information about an economy's structure of production.

Strong restrictions on the structure of preferences are a central feature in the received theory of intertemporal allocation. In fact, most of the modern literature concerned with capital-theoretic problems represents preferences by a functional in which an additive utility function is discounted by a constant rate of time preference. This specification is attractive because it is analytically tractable in dynamic models, and it clearly delineates how tastes and opportunities interact to determine an economy's (household's) paths of consumption and capital formation. However, its rigid structure (constancy of time preference) severely limits the conclusions and explanatory power of the corresponding models. This paper considers a class of utility functionals (in continuous time) which have the appealing feature that the rate of time preference depends systematically on an index of aggregate future consumption. The more flexible structure embodied in these functionals leads to important generalizations and modifications of standard conclusions. We highlight this added richness by examining five basic problems in dynamic economic analysis.