Poverty Traps and Business Cycles in a Stochastic Overlapping Generations Economy with S-shaped Law of Motion
This paper contributes to the understanding of stochastic economic dynamics with S-shaped law of motion. Applying random dynamical systems theory, we obtain a complete analysis of a stochastic OLG growth model. In the long-run the economy converges either to a state with no capital (poverty trap) or a sample path of a random fixed point (business cycle). The threshold capital stock separating both regimes is a random variable that depends on the future realization of the shocks; this critical level cannot be identified using past observations. Supply of outside capital therefore has an uncertain effect. Policy recommendations are given which cannot be obtained employing Markov equilibria. A numerical illustration is provided.
|Date of creation:||Oct 2002|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (+45) 35 32 30 10
Fax: +45 35 32 30 00
Web page: http://www.econ.ku.dk
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Schenk Hopp , Klaus Reiner, 2002. "Is There A Golden Rule For The Stochastic Solow Growth Model?," Macroeconomic Dynamics, Cambridge University Press, vol. 6(04), pages 457-475, September.
- Wang, Yong, 1994. "Stationary Markov Equilibria in an OLG Model with Correlated Production Shocks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 731-44, August.
- Schenk-Hoppe, Klaus Reiner & Schmalfu[ss], Bjorn, 2001.
"Random fixed points in a stochastic Solow growth model,"
Journal of Mathematical Economics,
Elsevier, vol. 36(1), pages 19-30, September.
- Klaus Reiner Schenk-Hoppé & Björn Schmalfuss, . "Random Fixed Points in a Stochastic Solow Growth Model," IEW - Working Papers 065, Institute for Empirical Research in Economics - University of Zurich.
- Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May.
When requesting a correction, please mention this item's handle: RePEc:kud:kuiedp:0213. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Hoffmann)
If references are entirely missing, you can add them using this form.