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Optimal growth and the golden rule in a two-sector model of capital accumulation

  • Mehdi Senouci

    (PSE - Paris-Jourdan Sciences Economiques - CNRS - Institut national de la recherche agronomique (INRA) - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)

We contribute to the literature on optimal growth in two-sector models by solving a Ram- sey problem with a concave utility function. The unique possible steady-state is independent of initial conditions and of the instantaneous utility function, but not of the discount rate, and is characterized by a wage-rental ratio depending solely on the technology of the capital sector. For an initially low-capital economy, we show that the wage-rental ratio increasingly converges to its balanced value during transition. If the consumption sector is relatively capital-intensive, the relative price of capital increases during transition. If the investment sector is relatively more capital-intensive, it decreases. We also prove that a negative shock on the subjective rate of impatience, that makes the social planner more patient, leads to an immediate positive jump in asset prices.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00572510.

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Date of creation: Feb 2011
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Handle: RePEc:hal:psewpa:halshs-00572510
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00572510
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  1. Jordi Galí & Luca Gambetti, 2006. "On the sources of the Great Moderation," Economics Working Papers 1041, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2007.
  2. Cremers, Emily T., 2006. "Dynamic efficiency in the two-sector overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 1915-1936, November.
  3. Galor, Oded, 1992. "A Two-Sector Overlapping-Generations Model: A Global Characterization of the Dynamical System," Econometrica, Econometric Society, vol. 60(6), pages 1351-86, November.
  4. Michael Gort & Jeremy Greenwood & Peter Rupert, 1999. "How much of economic growth is fueled by investment-specific technological progress?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Mar.
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