TY  - JOUR
AU  - Smetters,Kent
TI  - The (Interesting) Dynamic Properties of the Neoclassical Growth Model with CES Production
JF  - National Bureau of Economic Research Technical Working Paper Series
VL  - No. 290
PY  - 2003
Y2  - March 2003
UR  - http://www.nber.org/papers/t0290
L1  - http://www.nber.org/papers/t0290.pdf
N1  - Author contact info:
Kent Smetters
University of Pennsylvania
SH-DH 3303
3620 Locust Walk
Philadelphia, PA 19104
Tel: 215/898-9811
Fax: 215/898-0310
E-Mail: smetters@wharton.upenn.edu
AB  - Despite being the standard growth model for several decades, little is actually known analytically about the dynamic properties of the neoclassical Ramsey-Cass-Koopmans growth model. This paper derives analytically the properties of the endogenous saving rate when technology takes the Constant Elasticity of Substitution (CES) form. For a factor substitution elasticity between capital and labor less than unity, the saving rate decreases along the transition path after the capital stock reaches a critical value identified analytically herein. But before reaching this critical value, the saving rate might increase and so, taken as a whole, the saving rate path might manifest  overshooting.' Similarly, for a factor substitution elasticity greater than unity, the saving rate increases along the transition path after the capital stock reaches a critical value. Before reaching this critical value, the saving rate might decrease and so the saving rate path might manifest undershooting.' A simulation illustrating these interesting dynamics is presented.
ER  -