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

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  • Mauro BAMBI

    ()
    (Department of Economics and Related Studies, University of York)

  • Giorgio FABBRI

    ()
    (Universita di Napoli Parthenope and School of Mathematics and Statistics, UNSW, Sydney)

  • Fausto GOZZI

    ()
    (Dipartimento di Scienze Economiche ed Aziendali, Università LUISS - Guido Carli Roma, and Centro De Giorgi, Scuola Normale Superiore, Pisa, Italy)

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.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2010029.

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Length: 35
Date of creation: 29 Aug 2010
Date of revision:
Handle: RePEc:ctl:louvir:2010029

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Keywords: Time-to-build; AK model; Dynamic programming; optimal;

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References

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  1. 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.
  2. Raouf Boucekkine & Omar Licandro & Luis A. Puch & Fernando del Rio, . "Vintage capital and the dynamics of the AK model," Working Papers 2000-01, FEDEA.
  3. 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.
  4. Mauro Bambi, 2006. "Endogenous growth and time to build: the AK case," Computing in Economics and Finance 2006 77, Society for Computational Economics.
  5. 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.
  6. Patrick Asea & Paul J. Zak, 1997. "Time-to-Build and Cycles," UCLA Economics Working Papers 767, UCLA Department of Economics.
  7. 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.
  8. 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.).
  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. 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.
  11. 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.
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Cited by:
  1. 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.
  2. 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).
  3. 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.
  4. 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.
  5. Mauro Bambi & Omar Licandro, 2011. "Endogenous Growth and Wave-Like Business Fluctuation," Working Papers 533, Barcelona Graduate School of Economics.
  6. repec:hal:journl:halshs-00786419 is not listed on IDEAS

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