On the stability of endogenous growth models: An evaluation of the agents' response to output fluctuations
AbstractPurpose – The purpose of this paper is to present three modified versions of the simple AK endogenous growth model. Design/methodology/approach – Such frameworks stress the role of consumers' sentiment, the impact of fiscal policy and the effect of non-optimal investment decisions made by firms. In all the cases, today's decisions take into consideration the economic performance of the previous period; in the first case, households react pro-cyclically to the output path; in the second case, a counter-cyclical fiscal policy is considered; and in the third case, firms adopt a pro-cyclical behavior concerning investment choices. Findings – The author studies the stability properties of the three models and concludes that, on each one of them, a saddle-path stable equilibrium exists. Originality/value – The paper accentuates the relevance of the reaction of the economic agents relatively to the business cycle. By assuming that the behavior of consumers, government and firms is a behavior of reaction to economic fluctuations, we find interesting and relevant results in what concerns the conventional intertemporal optimization growth model.
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Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Journal of Economic Studies.
Volume (Year): 36 (2009)
Issue (Month): 1 (January)
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Other versions of this item:
- Gomes, Orlando, 2007. "On the stability of endogenous growth models: an evaluation of the agents’ response to output fluctuations," MPRA Paper 2891, University Library of Munich, Germany.
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
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