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Optimal Growth: Continuous Time Analysis

In: Economic Growth

Author

Listed:
  • Alfonso Novales

    (Complutense University of Madrid)

  • Esther Fernández

    (Complutense University of Madrid)

  • Jesús Ruiz

    (Complutense University of Madrid)

Abstract

We present the continuous time Cass–Koopmans model, characterizing the rate of capital accumulation that maximizes some social welfare criterion. Thus, we no longer consider a constant savings rate. We show the existence and stability of a unique optimal path. We discuss some numerical exercises on the long-run effects of changes in structural parameters, paying attention to the relevance of the different structural characteristics of the economy in characterizing the transition path between steady-states. The chapter closes with an economy with government. We examine the potential inefficiency of its competitive equilibrium with government, showing that the Ricardian doctrine, on the irrelevance of the financing tools used by the government, may not hold under some types of distortionary taxation.

Suggested Citation

  • Alfonso Novales & Esther Fernández & Jesús Ruiz, 2022. "Optimal Growth: Continuous Time Analysis," Springer Texts in Business and Economics, in: Economic Growth, edition 3, chapter 3, pages 111-167, Springer.
    • Handle: RePEc:spr:sptchp:978-3-662-63982-5_3
    DOI: 10.1007/978-3-662-63982-5_3
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