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Replacement Echoes in the Vintage Capital Growth Model

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  • Boucekkine, Raouf
  • Germain, Marc
  • Licandro, Omar

Abstract

This paper is concerned with a non-standard source of fluctuations, called echoes effects, i.e. the ability of an economy to reproduce its own past behaviour. In the sixties, growth theorists believed that this property could arise in vintage capital growth models, taking the form of replacement echoes. This line of research was stopped after the publication of Solow et al. (1966), who showed that echoes should vanish in a Solow growth model with vintage capital. In this paper, we claim that this result has nothing to do with vintages and comes directly from the constancy of the saving rate at equilibrium inherent to Solow growth models. We show that echoes do not vanish in the Ramsey vintage capital growth model with linear instantaneous utility function.
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Suggested Citation

  • 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.
  • Handle: RePEc:eee:jetheo:v:74:y:1997:i:2:p:333-348
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    References listed on IDEAS

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    1. Malcomson, James M., 1975. "Replacement and the rental value of capital equipment subject to obsolescence," Journal of Economic Theory, Elsevier, vol. 10(1), pages 24-41, February.
    2. 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.
    3. Raouf Boucekkine & David de la Croix & Omar Licandro, 2006. "Vintage Capital," Economics Working Papers ECO2006/8, European University Institute.
    4. Philippe Aghion & Peter Howitt, 1994. "Growth and Unemployment," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 477-494.
    5. Cooley, Thomas F. & Greenwood, Jeremy & Yorukoglu, Mehmet, 1997. "The replacement problem," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 457-499, December.
    6. Robert M. Solow, 1962. "Substitution and Fixed Proportions in the Theory of Capital," Review of Economic Studies, Oxford University Press, vol. 29(3), pages 207-218.
    7. R. M. Solow & J. Tobin & C. C. Weizsäcker & M. Yaari, 1971. "Neoclassical Growth with Fixed Factor Proportions," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 9, pages 68-102, Palgrave Macmillan.
    8. Benhabib, Jess & Rustichini, Aldo, 1991. "Vintage capital, investment, and growth," Journal of Economic Theory, Elsevier, vol. 55(2), pages 323-339, December.
    9. E. Sheshinski, 1967. "Balanced Growth and Stability in the Johansen Vintage Model," Review of Economic Studies, Oxford University Press, vol. 34(2), pages 239-248.
    10. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-1368, December.
    11. Chari, V V & Hopenhayn, Hugo, 1991. "Vintage Human Capital, Growth, and the Diffusion of New Technology," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1142-1165, December.
    12. van Hilten, Onno, 1991. "The optimal lifetime of capital equipment," Journal of Economic Theory, Elsevier, vol. 55(2), pages 449-454, December.
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