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Economic Growth, the Mathematical Pendulum, and a Golden Rule of Thumb

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  • Thomas Christiaans

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Abstract

It is argued that due to their general instability dynamic optimization models cannot be used as positive theories of economic growth. The argument is substantiated by (numerical) examples. A simple rule of thumb is provided as an alternative to the RKC model. This rule is shown to perform well from a normativeand to be reasonable from a positive point of view. The model is consistent with empirically estimated rates of convergence if a broad concept of capital is used.

Suggested Citation

  • Thomas Christiaans, 2001. "Economic Growth, the Mathematical Pendulum, and a Golden Rule of Thumb," Volkswirtschaftliche Diskussionsbeiträge 94-01, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  • Handle: RePEc:sie:siegen:94-01
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    File URL: http://www.wiwi.uni-siegen.de/vwl/repec/sie/papers/94-01.pdf
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Christiano, Lawrence J, 1990. "Linear-Quadratic Approximation and Value-Function Iteration: A Comparison," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 99-113, January.
    3. Levhari, David & Liviatan, Nissan, 1972. "On stability in the saddle-point sense," Journal of Economic Theory, Elsevier, vol. 4(1), pages 88-93, February.
    4. Brock, William A. & Scheinkman, JoseA., 1976. "Global asymptotic stability of optimal control systems with applications to the theory of economic growth," Journal of Economic Theory, Elsevier, vol. 12(1), pages 164-190, February.
    5. Samuelson, Paul A., 1972. "The general saddlepoint property of optimal-control motions," Journal of Economic Theory, Elsevier, vol. 5(1), pages 102-120, August.
    6. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
    7. M. Kurz, 1968. "The General Instability of a Class of Competitive Growth Processes," Review of Economic Studies, Oxford University Press, vol. 35(2), pages 155-174.
    8. Sargent, Thomas J & Wallace, Neil, 1973. "The Stability of Models of Money and Growth with Perfect Foresight," Econometrica, Econometric Society, vol. 41(6), pages 1043-1048, November.
    9. Burmeister,Edwin, 1980. "Capital Theory and Dynamics," Cambridge Books, Cambridge University Press, number 9780521297035, December.
    10. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, pages 669-700.
    11. Theo S. Eicher & Stephen J. Turnovsky & Uwe Walz, 2000. "Optimal Policy for Financial Market Liberalizations: Decentralization and Capital Flow Reversals," German Economic Review, Verein für Socialpolitik, vol. 1(1), pages 19-42, February.
    12. F. H. Hahn, 1966. "Equilibrium Dynamics with Heterogeneous Capital Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 80(4), pages 633-646.
    13. Krusell, Per & Smith, Anthony Jr., 1996. "Rules of thumb in macroeconomic equilibrium A quantitative analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 20(4), pages 527-558, April.
    14. Cass, David & Shell, Karl, 1976. "Introduction to Hamiltonian dynamics in economics," Journal of Economic Theory, Elsevier, vol. 12(1), pages 1-10, February.
    15. Walter Buhr & Thomas Christiaans, 2000. "Economic Decisions by Approved Principles: Rules of Thumb as Behavioral Guidelines," Volkswirtschaftliche Diskussionsbeiträge 89-00, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    16. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    More about this item

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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