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Economic Growth, the Mathematical Pendulum, and a Golden Rule of Thumb

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  • Thomas Christiaans

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    Abstract

    It is argued that due to their general instability dynamic optimization models cannot be used as positive theories of economic growth. The argument is substantiated by (numerical) examples. A simple rule of thumb is provided as an alternative to the RKC model. This rule is shown to perform well from a normativeand to be reasonable from a positive point of view. The model is consistent with empirically estimated rates of convergence if a broad concept of capital is used.

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    File URL: http://www.wiwi.uni-siegen.de/vwl/repec/sie/papers/94-01.pdf
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    Bibliographic Info

    Paper provided by Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht in its series Volkswirtschaftliche Diskussionsbeiträge with number 94-01.

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    Length: 26 pages
    Date of creation: Mar 2001
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    Handle: RePEc:sie:siegen:94-01

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    1. Levhari, David & Liviatan, Nissan, 1972. "On stability in the saddle-point sense," Journal of Economic Theory, Elsevier, vol. 4(1), pages 88-93, February.
    2. Walter Buhr & Thomas Christiaans, 2000. "Economic Decisions by Approved Principles: Rules of Thumb as Behavioral Guidelines," Volkswirtschaftliche Diskussionsbeiträge 89-00, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    3. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
    4. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
    5. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
    6. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    7. Christiano, Lawrence J, 1990. "Linear-Quadratic Approximation and Value-Function Iteration: A Comparison," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 99-113, January.
    8. William A. Brock & Jose A. Scheinkman, 1974. "Global Asymptotic Stability of Optimal Control Systems with Applications to the Theory of Economic Growth," Discussion Papers 85, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    9. Theo S. Eicher & Stephen J. Turnovsky & Uwe Walz, 2000. "Optimal Policy for Financial Market Liberalizations: Decentralization and Capital Flow Reversals," German Economic Review, Verein für Socialpolitik, vol. 1(1), pages 19-42, 02.
    10. Samuelson, Paul A., 1972. "The general saddlepoint property of optimal-control motions," Journal of Economic Theory, Elsevier, vol. 5(1), pages 102-120, August.
    11. Cass, David & Shell, Karl, 1976. "Introduction to Hamiltonian dynamics in economics," Journal of Economic Theory, Elsevier, vol. 12(1), pages 1-10, February.
    12. Sargent, Thomas J & Wallace, Neil, 1973. "The Stability of Models of Money and Growth with Perfect Foresight," Econometrica, Econometric Society, vol. 41(6), pages 1043-48, November.
    13. Krusell, Per & Smith, Anthony Jr., 1996. "Rules of thumb in macroeconomic equilibrium A quantitative analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 20(4), pages 527-558, April.
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