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The Short-Run Dynamics of Optimal Growth Models with Delays

  • Collard, Fabrice
  • Licandro, Omar
  • Puch, Luis

Differential equations with advanced and delayed time arguments may arise in the optimality conditions of simple growth models with delays. Models with delayed adoption of new technologies, habit formation or learning-by-using lie in this category. In this paper we present new insight on the role of advanced time arguments to mitigate the echo effects induced by lag structures. In so doing we use optimal control theory with delays, and we propose a shooting method to deal with leads and lags in the Euler system associated to dynamic general equilibrium models in continuous time. We implement these methods to solve for the short run dynamics of a neoclassical growth model with a simple time-to-build lag.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5414.

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Date of creation: Dec 2005
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Handle: RePEc:cpr:ceprdp:5414
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  1. Licandro, Omar & Germain, Marc & Boucekkine, Raouf, 1996. "Replacement echoes in the vintage capital growth model," UC3M Working papers. Economics 4096, Universidad Carlos III de Madrid. Departamento de Economía.
  2. Asea, Patrick K. & Zak, Paul J., 1999. "Time-to-build and cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 23(8), pages 1155-1175, August.
  3. Raouf Boucekkine & Omar Licandro & Christopher Paul, . "Differential-Difference Equations in Economics: On the Numerical Solution of Vintage Capital Growth Models," Computing in Economics and Finance 1996 _036, Society for Computational Economics.
  4. Jess Benhabib & Aldo Rustichini, 1990. "Vintage Capital, Investment and Growth," Discussion Papers 886, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Raouf BOUCEKKINE & Omar LICANDRO & Luis A. PUCH & Fernando DEL RIO, 2002. "Vintage Capital And the Dynamics of the AK Model," Economics Working Papers ECO2002/07, European University Institute.
  6. Raouf, BOUCEKKINE & David, DE LA CROIX & Omar, LICANDRO, 2006. "Vintage Capital," Discussion Papers (ECON - Département des Sciences Economiques) 2006014, Université catholique de Louvain, Département des Sciences Economiques.
  7. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
  8. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
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