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

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Author Info

  • 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
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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. Hippolyte d’Albis & Emmanuelle Augeraud-Véron, 2007. "Balanced cycles in an OLG model with a continuum of finitely-lived individuals," Economic Theory, Springer, Springer, vol. 30(1), pages 181-186, January.
  2. Rochelle M. Edge, 2000. "Time-to-build, time-to-plan, habit-persistence, and the liquidity effect," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 673, Board of Governors of the Federal Reserve System (U.S.).
  3. Luis A. Puch & Fabrice Collard & Omar Licandro, 2004. "The short-run dynamics of optimal growth models with delays," Computing in Economics and Finance 2004, Society for Computational Economics 117, Society for Computational Economics.
  4. Fabbri, Giorgio & Gozzi, Fausto, 2008. "Solving optimal growth models with vintage capital: The dynamic programming approach," Journal of Economic Theory, Elsevier, Elsevier, vol. 143(1), pages 331-373, November.
  5. Mauro Bambi, 2006. "Endogenous Growth and Time-to-Build: the AK Case," Economics Working Papers, European University Institute ECO2006/17, European University Institute.
  6. Patrick Asea & Paul J. Zak, 1997. "Time-to-Build and Cycles," UCLA Economics Working Papers, UCLA Department of Economics 767, UCLA Department of Economics.
  7. Boucekkine, Raouf & Licandro, Omar & Puch, Luis A. & del Rio, Fernando, 2005. "Vintage capital and the dynamics of the AK model," Journal of Economic Theory, Elsevier, Elsevier, vol. 120(1), pages 39-72, January.
  8. 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.
  9. El-Hodiri, Mohamed A & Loehman, Edna & Whinston, Andrew B, 1972. "An Optimal Growth Model with Time Lags," Econometrica, Econometric Society, Econometric Society, vol. 40(6), pages 1137-46, November.
  10. Raouf Boucekkine & Omar Licandro & Luis A. Puch & Fernando del Rio, . "Vintage capital and the dynamics of the AK model," Working Papers 2000-01, FEDEA.
  11. Ortigueira, Salvador & Santos, Manuel S, 1997. "On the Speed of Convergence in Endogenous Growth Models," American Economic Review, American Economic Association, American Economic Association, vol. 87(3), pages 383-99, June.
  12. Akiomi Kitagawa & Akihisa Shibata, 2005. "Endogenous growth cycles in an overlapping generations model with investment gestation lags," Economic Theory, Springer, Springer, vol. 25(3), pages 751-762, 04.
  13. Fabrice Collard & Omar Licandro & Luis A. Puch, . "The short-run dynamics of optimal growth models with delays," Working Papers 2004-05, FEDEA.
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Cited by:
  1. Raouf Boucekkine & Giorgio Fabbri & Patrick-Antoine Pintus, 2011. "On the optimal control of a linear neutral differential equation arising in economics," Working Papers halshs-00576770, HAL.
  2. Hippolyte d'Albis & Emmanuelle Augeraud-Véron & Hermen Jan Hupkes, 2013. "Multiple Solutions in Systems of Functional Differential Equations," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 13007, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  3. 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.
  4. Giorgio Fabbri & Salvatore Federico, 2014. "On the infinite-dimensional representation of stochastic controlled systems with delayed control in the diffusion term," Working Papers hal-01038088, HAL.
  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
  7. Emmanuelle Augeraud-Veron & Mauro Bambi, 2012. "Does habit formation always increase the agents' desire to smooth consumption?," Discussion Papers, Department of Economics, University of York 12/12, Department of Economics, University of York.

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