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The short-run Dynamics of Optimal Growth Model with Delays

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  • Fabrice COLLARD
  • Omar LICANDRO
  • Luis A. PUCH

Abstract

Differential equations with advanced and delayed arguments arise in the optimality conditions of continuous time growth models with delays. In this paper, we use optimal control theory with delays, and we propose a shooting method to numerically deal with this class of models. We find that for a large delay the economy converges to steady state by oscillations, but consumption smoothing mitigates the induced echo effects through an advanced Euler-type differential equation.

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Bibliographic Info

Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (2008)
Issue (Month): 90 ()
Pages: 127-143

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Handle: RePEc:adr:anecst:y:2008:i:90:p:05

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  1. Raouf Boucekkine & Omar Licandro & Christopher Paul, . "Differential-Difference Equations in Economics: On the Numerical Solution of Vintage Capital Growth Models," Computing in Economics and Finance 1996, Society for Computational Economics _036, Society for Computational Economics.
  2. Raouf Boucekkine & Omar Licandro & Luis A. Puch & Fernando del Rio, 2003. "Vintage capital and the dynamics of the AK model," Documentos de Trabajo del ICAE, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico 0310, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  3. Raouf, BOUCEKKINE & David, DE LA CROIX & Omar, LICANDRO, 2006. "Vintage Capital," Discussion Papers (ECON - Département des Sciences Economiques), Université catholique de Louvain, Département des Sciences Economiques 2006014, Université catholique de Louvain, Département des Sciences Economiques.
  4. Benhabib, Jess & Rustichini, Aldo, 1991. "Vintage capital, investment, and growth," Journal of Economic Theory, Elsevier, Elsevier, vol. 55(2), pages 323-339, December.
  5. Asea, Patrick K. & Zak, Paul J., 1999. "Time-to-build and cycles," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 23(8), pages 1155-1175, August.
  6. Christopher D. Carroll & Jody Overland & David N. Weil, 1995. "Saving and growth with habit formation," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 95-42, Board of Governors of the Federal Reserve System (U.S.).
  7. Boucekkine, R. & Germain, M. & Licandro, O., . "Replacement echoes in the vintage capital growth model," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1275, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262100711, December.
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Cited by:
  1. Simon Sosvilla-Rivero & Pedro N. Rodríguez, . "Linkages in international stock markets: Evidence from a classification procedure," Working Papers 2004-23, FEDEA.
  2. Raouf, BOUCEKKINE & David de la Croix & Omar Lidandro, 2004. "Modelling vintage structures with DDEs : principles and applications," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 2004004, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  3. Francesco Ricci, 2007. "Environmental policy and growth when inputs are differentiated in pollution intensity," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 38(3), pages 285-310, November.
  4. Mauro BAMBI & Giorgio FABBRI & Fausto GOZZI, 2010. "Optimal policy and consumption smoothing effects in the time-to-build AK model," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 2010029, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  5. Raouf Boucekkine & Giorgio Fabbri & Patrick-Antoine Pintus, 2011. "On the optimal control of a linear neutral differential equation arising in economics," Working Papers, HAL halshs-00576770, HAL.
  6. Mauro Bambi, 2006. "Endogenous Growth and Time-to-Build: the AK Case," Economics Working Papers, European University Institute ECO2006/17, European University Institute.
  7. Ulrich Brandt-Pollmann & Ralph Winkler & Sebastian Sager & Ulf Moslener & Johannes P. Schlöder, 2006. "Numerical solution of optimal control problems with constant control delays," CER-ETH Economics working paper series, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich 06/59, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  8. Mauro Bambi & Omar Licandro, 2011. "Endogenous Growth and Wave-Like Business Fluctuation," Working Papers, Barcelona Graduate School of Economics 533, Barcelona Graduate School of Economics.
  9. José A. Herce, . "Could this ever happen in Spain? Economic and policy aspects of a SARS-like episode," Working Papers 2004-09, FEDEA.

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