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Optimal policy and consumption smoothing effects in the time-to-build AK model

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  • M. Bambi

    ()

  • G. Fabbri

    ()

  • F. Gozzi

    ()

Abstract

In this paper, the dynamic programming approach is exploited in order to identify the closed loop policy function, and the consumption smoothing mechanism in an endogenous growth model with time to build, linear technology and irreversibility constraint in investment. Moreover, the link among the time to build parameter, the real interest rate, and the magnitude of the smoothing effect is deeply investigated and compared with what happens in a vintage capital model characterized by the same technology and utility function. Finally, we have analyzed the effect of time to build on the speed of convergence of the main aggregate variables. Copyright Springer-Verlag 2012

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 50 (2012)
Issue (Month): 3 (August)
Pages: 635-669

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Handle: RePEc:spr:joecth:v:50:y:2012:i:3:p:635-669

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Related research

Keywords: Time-to-build; AK model; Dynamic programming; Optimal strategies; Closed loop policy; E22; E32; O40;

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References

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  1. Rochelle M. Edge, 2000. "Time-to-build, time-to-plan, habit-persistence, and the liquidity effect," International Finance Discussion Papers 673, Board of Governors of the Federal Reserve System (U.S.).
  2. Patrick K. Asea & Paul J. Zak, 1997. "Time-to-Build and Cycles," NBER Technical Working Papers 0211, National Bureau of Economic Research, Inc.
  3. Mauro Bambi, 2006. "Endogenous growth and time to build: the AK case," Computing in Economics and Finance 2006 77, Society for Computational Economics.
  4. Fabrice COLLARD & Omar LICANDRO & Luis A. PUCH, 2004. "The short-run dynamics of optimal growth models with delays," Economics Working Papers ECO2004/04, European University Institute.
  5. BOUCEKKINE, Raouf & LICANDRO, Omar & PUCH, Luis A. & DEL RIO, Fernando, . "Vintage capital and the dynamics of the AK model," CORE Discussion Papers RP -1757, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Hippolyte D'Albis & Emmanuelle Augeraud-Véron, 2007. "Balanced cycles in an OLG model with a continuum of finitely-lived individuals," Post-Print hal-00630229, HAL.
  7. Mauro Bambi, 2008. "Unifying time-to-build theory," CER-ETH Economics working paper series 08/98, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  8. El-Hodiri, Mohamed A & Loehman, Edna & Whinston, Andrew B, 1972. "An Optimal Growth Model with Time Lags," Econometrica, Econometric Society, vol. 40(6), pages 1137-46, November.
  9. Ortigueira, Salvador & Santos, Manuel S, 1997. "On the Speed of Convergence in Endogenous Growth Models," American Economic Review, American Economic Association, vol. 87(3), pages 383-99, June.
  10. Akiomi Kitagawa & Akihisa Shibata, 2005. "Endogenous growth cycles in an overlapping generations model with investment gestation lags," Economic Theory, Springer, vol. 25(3), pages 751-762, 04.
  11. Fabbri, Giorgio & Gozzi, Fausto, 2008. "Solving optimal growth models with vintage capital: The dynamic programming approach," Journal of Economic Theory, Elsevier, vol. 143(1), pages 331-373, November.
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Cited by:
  1. BOUCEKKINE, Raouf & FABBRI, Giorgio & PINTUS, Patrick, . "On the optimal control of a linear neutral differential equation arising in economics," CORE Discussion Papers RP -2449, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. d’Albis, Hippolyte & Augeraud-Véron, Emmanuelle & Hupkes, Hermen Jan, 2014. "Multiple solutions in systems of functional differential equations," Journal of Mathematical Economics, Elsevier, vol. 52(C), pages 50-56.
  3. repec:hal:journl:halshs-00786419 is not listed on IDEAS
  4. Mauro Bambi & Omar Licandro, 2011. "Endogenous Growth and Wave-Like Business Fluctuation," Working Papers 533, Barcelona Graduate School of Economics.
  5. Emmanuelle Augeraud-Veron & Mauro Bambi, 2012. "Does habit formation always increase the agents' desire to smooth consumption?," Discussion Papers 12/12, Department of Economics, University of York.
  6. Hippolyte D'Albis & Emmanuelle Augeraud-Véron & Hermen Jan Hupkes, 2013. "Multiple Solutions in Systems of Functional Differential Equations," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00786419, HAL.
  7. Caulkins, Jonathan P. & Hartl, Richard F. & Kort, Peter M., 2010. "Delay equivalence in capital accumulation models," Journal of Mathematical Economics, Elsevier, vol. 46(6), pages 1243-1246, November.

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