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Optimal policy and consumption smoothing effects in the time-to-build AK model

  • Mauro BAMBI


    (Department of Economics and Related Studies, University of York)

  • Giorgio FABBRI


    (Universita di Napoli Parthenope and School of Mathematics and Statistics, UNSW, Sydney)

  • Fausto GOZZI


    (Dipartimento di Scienze Economiche ed Aziendali, Università LUISS - Guido Carli Roma, and Centro De Giorgi, Scuola Normale Superiore, Pisa, Italy)

In this paper the dynamic programming approach is exploited in order to identify the closed loop policy function, and the consumption smoothing mechanism in an endogenous growth model with time to build, linear technology and irreversibility constraint in investment. Moreover the link among the time to build parameter, the real interest rate, and the magnitude of the smoothing effect is deeply investigated and compared with what happens in a vintage capital model characterized by the same technology and utility function. Finally we have analyzed the effect of time to build on the speed of convergence of the main aggregate variables.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2010029.

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Length: 35
Date of creation: 29 Aug 2010
Date of revision:
Handle: RePEc:ctl:louvir:2010029
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  1. Ortigueira, Salvador & Santos, Manuel S, 1997. "On the Speed of Convergence in Endogenous Growth Models," American Economic Review, American Economic Association, vol. 87(3), pages 383-99, June.
  2. Akiomi Kitagawa & Akihisa Shibata, 2005. "Endogenous growth cycles in an overlapping generations model with investment gestation lags," Economic Theory, Springer, vol. 25(3), pages 751-762, 04.
  3. Fabbri, Giorgio & Gozzi, Fausto, 2008. "Solving optimal growth models with vintage capital: The dynamic programming approach," Journal of Economic Theory, Elsevier, vol. 143(1), pages 331-373, November.
  4. Mauro Bambi, 2008. "Unifying time-to-build theory," CER-ETH Economics working paper series 08/98, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  5. Hippolyte D'Albis & Emmanuelle Augeraud-Véron, 2007. "Balanced cycles in an OLG model with a continuum of finitely-lived individuals," Post-Print hal-00630229, HAL.
  6. Collard, Fabrice & Licandro, Omar & Puch, Luis, 2005. "The Short-Run Dynamics of Optimal Growth Models with Delays," CEPR Discussion Papers 5414, C.E.P.R. Discussion Papers.
  7. Rochelle M. Edge, 2000. "Time-to-build, time-to-plan, habit-persistence, and the liquidity effect," International Finance Discussion Papers 673, Board of Governors of the Federal Reserve System (U.S.).
  8. R. Boucekkine & F. del Rio & O. Licandro & Luis A. Puch, 2000. "Vintage Capital and the Dynamics of the AK Model," Econometric Society World Congress 2000 Contributed Papers 0436, Econometric Society.
  9. Patrick K. Asea & Paul J. Zak, 1997. "Time-to-Build and Cycles," NBER Technical Working Papers 0211, National Bureau of Economic Research, Inc.
  10. El-Hodiri, Mohamed A & Loehman, Edna & Whinston, Andrew B, 1972. "An Optimal Growth Model with Time Lags," Econometrica, Econometric Society, vol. 40(6), pages 1137-46, November.
  11. Mauro Bambi, 2006. "Endogenous Growth and Time-to-Build: the AK Case," Economics Working Papers ECO2006/17, European University Institute.
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