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Stochastic Optimal Growth with Risky Labor Supply

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  • Yiyong CAI

    (CSIRO Centre for Complex Systems Science, Commonwealth Scientific and Industrial Research Organisation, Australia and Centre for Applied Macroeconomic Analysis, Australian National University)

  • Takashi Kamihigashi

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • John Stachurski

    (Research School of Economics, Australian National University, Australia)

Abstract

Production takes time, and labor supply and profit maximization decisions that relate to current production are typically made before all shocks affecting that production have been realized. In this paper we re-examine the problem of stochastic optimal growth with aggregate risk where the timing of the model conforms to this information structure. We provide a set of conditions under which the economy has a unique, nontrivial and stable stationary distribution. In addition, we verify key optimality properties in the presence of unbounded shocks and rewards, and provide the sample path laws necessary for consistent estimation and simulation.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2013-23.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2013-23.

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Length: 27 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:kob:dpaper:dp2013-23

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Keywords: stochastic stability; elastic labor; optimal growth;

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  1. Stefano Bosi & Cuong Le Van, 2011. "On the existence of a Ramsey equilibrium with endogenous labor supply and borrowing constraints," Documents de travail du Centre d'Economie de la Sorbonne 11045, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
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Citations

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Cited by:
  1. Takashi Kamihigashi, 2014. "Multiple Interior Steady States in the Ramsey Model with Elastic Labor Supply," Working Papers 2014-158, Department of Research, Ipag Business School.
  2. Yiyong Cai & Takashi Kamihigashi & John Stachurski, 2012. "Stochastic Optimal Growth with Risky Labor Supply," ANU Working Papers in Economics and Econometrics 2012-585, Australian National University, College of Business and Economics, School of Economics.

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