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On the solution of the growth model with investment-specific technological change

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  • Jesus Fernandez-Villaverde
  • Juan F. Rubio-Ramirez

Abstract

Recent work by Greenwood et al. (1997, 2000) and Fisher (2003) has emphasized the importance of investment-specific technological change as a main driving force behind long-run growth and the business cycle. This article shows how the growth model with investment-specific technological change has a closed-form solution if capital fully depreciates. This solution furthers our understanding of the model and it constitutes a useful benchmark to check the accuracy of numerical procedures to solve dynamic macroeconomic models in cases with several state variables.

Suggested Citation

  • Jesus Fernandez-Villaverde & Juan F. Rubio-Ramirez, 2007. "On the solution of the growth model with investment-specific technological change," Applied Economics Letters, Taylor & Francis Journals, vol. 14(8), pages 549-553.
  • Handle: RePEc:taf:apeclt:v:14:y:2007:i:8:p:549-553
    DOI: 10.1080/13504850600592564
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    References listed on IDEAS

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    1. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 2000. "The role of investment-specific technological change in the business cycle," European Economic Review, Elsevier, vol. 44(1), pages 91-115, January.
    2. Jonas D. M. Fisher, 1999. "The new view of growth and business cycles," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 35-56.
    3. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
    4. Jonas D. M. Fisher, 2002. "Technology shocks matter," Working Paper Series WP-02-14, Federal Reserve Bank of Chicago.
    5. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-362, June.
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