Indeterminacy in a log-linearized neoclassical growth model with quasi-geometric discounting

This paper studies the properties of solutions to a log-linearized version of the neoclassical growth model with quasi-geometric discounting. We show that after the log-linearization, the model has indeterminacy and multiplicity of equilibria even though the original non-linear model has a unique interior solution. Specifically, in both the deterministic and stochastic cases, the log-linearized model has a continuum of steady states. In the deterministic case, there is a unique log-linear policy function leading to each steady state, while in the stochastic case, there is a continuum of log-linear policy functions, associated with each steady state. We show that the constructed log-linear solutions cannot be ranked across the entire state space. (c) 2006 Elsevier B.V. All rights reserved.