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Analitical Derivation of the Cobb-Douglas Function based on the Golden Rule of Capital Accumulation

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  • Yashin, Pete

Abstract

In this paper, the neoclassical model is extended for the general case of economic growth, which can be represented as the sum of cyclical and growth components. If the general formulation of the golden rule of capital accumulation is satisfied (the savings rate is equal to the capital income share), the production function takes the form of the Cobb-Douglas function. This function governs the economic growth both when the economy is growing along an equilibrium path and when the economy is departing from it (the correlation coefficient between U.S. GDP changes and calculated ones is equal to 0.91). When economy fluctuations are averaged along an equilibrium path, the Cobb-Douglas function reduces to condition, which is similar to Harrod-Domar one. The level of technology may be reasonably considered to express in terms of the wage level.

Suggested Citation

  • Yashin, Pete, 2008. "Analitical Derivation of the Cobb-Douglas Function based on the Golden Rule of Capital Accumulation," MPRA Paper 12174, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:12174
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    References listed on IDEAS

    as
    1. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    2. Paul Gomme & Finn E. Kydland & Peter Rupert, 2001. "Home Production Meets Time to Build," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1115-1131, October.
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    More about this item

    Keywords

    neoclassical growth model; golden rula of capital accumulation; Cobb-Douglas function; Harrod-Domar condition;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical

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