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The short-run Dynamics of Optimal Growth Model with Delays

  • Fabrice COLLARD
  • Omar LICANDRO
  • Luis A. PUCH

Differential equations with advanced and delayed arguments arise in the optimality conditions of continuous time growth models with delays. In this paper, we use optimal control theory with delays, and we propose a shooting method to numerically deal with this class of models. We find that for a large delay the economy converges to steady state by oscillations, but consumption smoothing mitigates the induced echo effects through an advanced Euler-type differential equation.

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File URL: http://www.jstor.org/stable/27739821
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Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (2008)
Issue (Month): 90 ()
Pages: 127-143

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Handle: RePEc:adr:anecst:y:2008:i:90:p:05
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  1. Asea, Patrick K. & Zak, Paul J., 1999. "Time-to-build and cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 23(8), pages 1155-1175, August.
  2. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
  3. Boucekkine, Raouf & Licandro, Omar & Puch, Luis A. & del Rio, Fernando, 2005. "Vintage capital and the dynamics of the AK model," Journal of Economic Theory, Elsevier, vol. 120(1), pages 39-72, January.
  4. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, June.
  5. Raouf Boucekkine & David de la Croix & Omar Licandro, 2006. "Vintage Capital," Economics Working Papers ECO2006/8, European University Institute.
  6. Raouf Boucekkine & Omar Licandro & Christopher Paul, . "Differential-Difference Equations in Economics: On the Numerical Solution of Vintage Capital Growth Models," Computing in Economics and Finance 1996 _036, Society for Computational Economics.
  7. Boucekkine, R. & Germain, M. & Licandro, O., . "Replacement echoes in the vintage capital growth model," CORE Discussion Papers RP -1275, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Jess Benhabib & Aldo Rustichini, 1990. "Vintage Capital, Investment and Growth," Discussion Papers 886, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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