Getachew, Yoseph (2012) 'Do Ak models really lack transitional dynamics ?', Working Paper. Durham University, Durham.
Contrary to a popular belief, the most popular Ak growth models display transitional dynamics once the representative agent and complete markets assumptions are overturned. The class of models is identified with diminishing-returns at individual but constant-returns at aggregate due to externality effects. Under incomplete markets, the former implies that dynasties with a lower levels of initial capital grow faster. This is picked up by the aggregate economy that passes through a long transitional period before it converges to its balanced growth path. During the transition period, aggregate consumption and output grow at the same rate but higher than that of capital.
|Item Type:||Monograph (Working Paper)|
|Keywords:||Ak model, Inequality dynamics, Heterogeneous households, Incomplete capital market. JEL classifcation: D3 E1 O4.|
|Full text:||PDF - Published Version (180Kb)|
|Publisher Web site:||http://www.dur.ac.uk/business/faculty/working-papers/|
|Record Created:||07 Dec 2012 10:36|
|Last Modified:||07 Dec 2012 12:31|
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