Despite being the standard growth model for several decades, little is actually known analytically about the dynamic properties of the neoclassical Ramsey-Cass-Koopmans growth model. This papers derives analytically the properties of the endogenous savings rate when technology takes the Constant Elesticity of Substitution (CES) form. For a factor substitution elasticity between capital and labor less than unity, the saving rate decreases along the transition path after the capital stock reaches a critical value identified analytically herein. But before reaching this critical value, the saving rate might increase and so, taken as a whole, the saving rate path might manifest 'overshooting.' Similarly, for a factor substitution elasticity greater than unity, the saving rate increases along the transistion path after the capital stock reaches a critical value. Before reaching this critical value, the saving rate might decrease and the saving rate path might manifest 'undershooting.' A simulation illustrating these interesting dynamics is presented. (Copyright: Elsevier)
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Find related papers by JEL classification: E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data) O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
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