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Assessing Dynamic Efficiency: Theory and Evidence

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  • Andrew B. Abel
  • N. Gregory Mankiw
  • Lawrence H. Summers
  • Richard J. Zeckhauser

Abstract

The issue of dynamic efficiency is central to analyses of capital accumulation and economic growth. Yet the question of what operating characteristics of an economy subject to productivity shocks should be examined to determine whether or not it is efficient has not been resolved. This paper develops criterion based on observables for determining whether or not an economy is dynamically efficient. The criterion involves a comparison of the cash flows generated by capital with the volume of investment. Its application to the United States economy and the economies of other major OECD nations suggests that they are dynamically efficient.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2097.

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Date of creation: Dec 1986
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Publication status: published as Review of Economic Studies, Vol. 56, No. 1, pp. 1-20, (January 1989).
Handle: RePEc:nbr:nberwo:2097

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  1. Solow, Robert M., 2000. "Growth Theory: An Exposition," OUP Catalogue, Oxford University Press, edition 2, number 9780195109030, September.
  2. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  3. Cass, David, 1972. "On capital overaccumulation in the aggregative, neoclassical model of economic growth: A complete characterization," Journal of Economic Theory, Elsevier, vol. 4(2), pages 200-223, April.
  4. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
  5. Frederic S. Mishkin, 1984. "The Real Interest Rate: A Multi-Country Empirical Study," Canadian Journal of Economics, Canadian Economics Association, vol. 17(2), pages 283-311, May.
  6. Robert J. Shiller, 1984. "Stock Prices and Social Dynamics," Cowles Foundation Discussion Papers 719R, Cowles Foundation for Research in Economics, Yale University.
  7. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  8. Feldstein, Martin S, 1976. "Perceived Wealth in Bonds and Social Security: A Comment," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 331-36, April.
  9. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  10. Samuelson, Paul A., 1979. "Why we should not make mean log of wealth big though years to act are long," Journal of Banking & Finance, Elsevier, vol. 3(4), pages 305-307, December.
  11. Summers, Lawrence H, 1986. " Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July.
  12. Feldstein, Martin S, 1977. "Does the United States Save too Little?," American Economic Review, American Economic Association, vol. 67(1), pages 116-21, February.
  13. Martin Feldstein & Lawrence Summers, 1977. "Is the Rate of Profit Falling?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(1), pages 211-228.
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