Do Ak models really lack transitional dynamics?
AbstractContrary to a popular belief, the most popular Ak growth models display transitional dynamics once the representative agent and complete markets assumptions are overturned. The class of models is identified with diminishing-returns at individual but constant-returns at aggregate due to externality effects. Under incomplete markets, the former implies that dynasties with a lower levels of initial capital grow faster. This is picked up by the aggregate economy that passes through a long transitional period before it converges to its balanced growth path. During the transition period, aggregate consumption and output grow at the same rate but higher than that of capital.
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Bibliographic InfoPaper provided by Durham University Business School in its series Working Papers with number 2012_01.
Date of creation: 06 Feb 2012
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Ak model; inequality dynamics; heterogeneous households; incomplete capital market;
Find related papers by JEL classification:
- D3 - Microeconomics - - Distribution
- E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
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