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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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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. Patrick K. Asea & Paul J. Zak, 1997. "Time-to-Build and Cycles," NBER Technical Working Papers 0211, National Bureau of Economic Research, Inc.
  2. BOUCEKKINE, Raouf & DE LA CROIX, David & LICANDRO, Omar, 2006. "Vintage capital," CORE Discussion Papers 2006024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Benhabib, Jess & Rustichini, Aldo, 1990. "Vintage Capital, Investment And Growth," Working Papers 90-22, C.V. Starr Center for Applied Economics, New York University.
  4. 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.
  5. Boucekkine, Raouf & Germain, Marc & Licandro, Omar, 1997. "Replacement Echoes in the Vintage Capital Growth Model," Journal of Economic Theory, Elsevier, vol. 74(2), pages 333-348, June.
  6. Christopher D. Carroll & Jody Overland & David N. Weil, 1995. "Saving and growth with habit formation," Finance and Economics Discussion Series 95-42, Board of Governors of the Federal Reserve System (U.S.).
  7. Boucekkine, Raouf & Licandro, Omar & Paul, Christopher, 1997. "Differential-difference equations in economics: On the numerical solution of vintage capital growth models," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 347-362.
  8. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, June.
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