Indeterminacy of Ramsey Model Under Heterogeneous Time Preference, Transversality Condition Issues, Theories of Price Level and Uniform Rate of Interest
This paper presents a simple Ramsey type model example where two infinitely living agents have same utility function except for time preference, and shows that equilibrium is indeterminate that is to be interpreted as being non existent. The issues regarding New Keynesian transversality condition is also discussed, on whether zero output gap convergence can economics wise be maintained. Initial bond/state variable condition problem is discussed also. Then the paper takes insights from these problems and tries to provide "money" proper value in Ramsey context, which results in reconciliation of different theories of price level, with possible monetary theory dominance when legal barrier of monetary policy is reduced. The issue of uniform rate of interest is discussed in the relevant context, especially with connection to Arrow Debreu results.