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Is There a Golden Rule for the Stochastic Solow Growth Model ?

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Author Info
Klaus Reiner Schenk-Hoppé

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Abstract

This paper analyzes the dependence of average consumption on the saving rate in a one-sector neoclassical Solow growth model with pro-duction shocks and stochastic rates of population growth and depreciation where arbitrary ergodic processes are considered. We show that the long-run behavior of the stochastic capital intensity, and hence average consumption along any sample-path, is uniquely determined by a random fixed point which depends continuously on the saving rate. This result enables us to prove the existence of a golden rule saving rate which maximizes average consumption per capita. We also show that the golden rule path is dynamically efficient. The results are illustrated numerically for Cobb–Douglas and CES production function.

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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number iewwp033.

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Handle: RePEc:zur:iewwpx:033

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Related research
Keywords: Stochastic Solow model; golden rule; random fixed points; random dynamical systems;

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Find related papers by JEL classification:
E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
C60 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - General
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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  1. Bruno S. Frey & Marcel Kucher & Alois Stutzer, . "Outcome, Process & Power in Direct Democracy," IEW - Working Papers iewwp025, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  2. Josef Falkinger et al., 2000. "A Simple Mechanism for the Efficient Provision of Public Goods: Experimental Evidence," American Economic Review, American Economic Association, vol. 90(1), pages 247-264, March. [Downloadable!] (restricted)
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  3. Armin Falk & Ernst Fehr & Urs Fischbacher, . "On the Nature of Fair Behavior," IEW - Working Papers iewwp017, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  4. Bruno S. Frey & Alois Stutzer, . "Maximising Happiness?," IEW - Working Papers iewwp022, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  5. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers iewwp004, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  6. Bruno S. Frey & Lorenz Goette, . "Does Pay Motivate Volunteers?," IEW - Working Papers iewwp007, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  7. Frey, Bruno S. & Stutzer, Alois, 2000. "Happiness, Economy and Institutions," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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