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Is There A Golden Rule For The Stochastic Solow Growth Model?

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  • Schenk–Hoppé, Klaus Reiner

Abstract

This paper analyzes the dependence of average consumption on the saving rate in a one-sector neoclassical Solow growth model with production 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 that depends continuously on the saving rate. This result enables us to prove the existence of a golden-rule saving rate that 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 functions.

Suggested Citation

  • Schenk–Hoppé, Klaus Reiner, 2002. "Is There A Golden Rule For The Stochastic Solow Growth Model?," Macroeconomic Dynamics, Cambridge University Press, vol. 6(4), pages 457-475, September.
    • Handle: RePEc:cup:macdyn:v:6:y:2002:i:04:p:457-475_01
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    Cited by:

    1. Darong Dai, 2014. "A Golden Formula in Neoclassical-Growth Models with Brownian-Motion Shocks," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(2), pages 211-228, May.
    2. Schenk-Hoppe, Klaus Reiner, 2005. "Poverty traps and business cycles in a stochastic overlapping generations economy with S-shaped law of motion," Journal of Macroeconomics, Elsevier, vol. 27(2), pages 275-288, June.
    3. Cuong Van & John Stachurski, 2007. "Parametric continuity of stationary distributions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 33(2), pages 333-348, November.

    More about this item

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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