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General Equilibrium Vintage Capital Growth Models Displaying Periodic Solutions : A Theoretical Example

  • BOUCEKKINE, Raouf

    ()

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

  • GERMAIN, Marc

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

  • LICANDRO, Omar

    (FEDEA and Universidad Carlos III de Madrid)

In a dynamic general equilibrium setup, this paper highlights the role of vintages and creative destruction in business fluctuations. By stressing the forward-looking characteristic of the optimal scrapping rule, we use a standard rational expectations argument to show the constancy of the scrapping function in a linear utility function framework. Secondly, we prove that equilibrium output shows a purely periodic behavior around an exponential growth trend, the pattern of the cycle being determined by the pattern of initial conditions. Actually, this paper points at the so-called echoe effects as a relevant economic fluctuations source, an issue rather neglected by theorists since the publication of Solow et alii (1966) seminal paper.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1996032.

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Date of creation: 01 Jun 1996
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Handle: RePEc:cor:louvco:1996032
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