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Do Ak models really lack transitional dynamics?

Author

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  • Yoseph Yilma Getachew

    (Durham Business School)

Abstract

Contrary to a popular belief, the most popular Ak growth models display transitional dynamics once the representative agent and complete markets assumptions are overturned. The class of models is identified with diminishing-returns at individual but constant-returns at aggregate due to externality effects. Under incomplete markets, the former implies that dynasties with a lower levels of initial capital grow faster. This is picked up by the aggregate economy that passes through a long transitional period before it converges to its balanced growth path. During the transition period, aggregate consumption and output grow at the same rate but higher than that of capital.

Suggested Citation

  • Yoseph Yilma Getachew, 2012. "Do Ak models really lack transitional dynamics?," Department of Economics Working Papers 2012_01, Durham University, Department of Economics.
    • Handle: RePEc:dur:durham:2012_01
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    JEL classification:

    • D3 - Microeconomics - - Distribution
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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