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Do Ak models really lack transitional dynamics ?

Getachew, Yoseph (2012) 'Do Ak models really lack transitional dynamics ?', Working Paper. Durham University, Durham.

Abstract

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)
Status:Not peer-reviewed
Publisher Web site:http://www.dur.ac.uk/business/faculty/working-papers/
Record Created:07 Dec 2012 10:36
Last Modified:16 Oct 2013 13:23

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