A Three-period Samuelson-Diamond Growth
AbstractSamuelson (1958) analyses a three-period model, whereas Diamod (1965) considers a two-period model. This difference poses the question whether the insights derived by analysing the simple two-period model carry over in the more complicated three-period case. They do. The Samuelson model (no productive capital) has only one positive solution (r = n); however, this root is unstable. The Diamond model (no nonproductive abode of purchasing power) has also only one positive solution; the root is stable but inefficient. In a model with both productive capital and a non-productive abode of purchasing power, the inefficient Diamond solution becomes unstable and the socially optimal solution becomes stable.
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Bibliographic InfoPaper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 15-2005.
Length: 10 pages
Date of creation: 13 Nov 2005
Date of revision:
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