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
DO - 10.3386/t0290
UR - http://www.nber.org/papers/t0290
L1 - http://www.nber.org/papers/t0290.pdf
N1 - Author contact info:
Kent Smetters
The Wharton School
The University of Pennsylvania
3733 Spruce Street
Vance Hall 325
Philadelphia, PA 19104
Tel: 215/898-9811
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 -