Hostname: page-component-76fb5796d-2lccl Total loading time: 0 Render date: 2024-04-25T12:01:58.030Z Has data issue: false hasContentIssue false
  • English
  • Français

THE BEHAVIOR OF THE SAVING RATE IN THE NEOCLASSICAL OPTIMAL GROWTH MODEL

Published online by Cambridge University Press:  23 June 2010

Anastasia Litina  and
Theodore Palivos
Anastasia Litina
Affiliation:
University of Macedonia
Theodore Palivos*
Affiliation:
University of Macedonia and Rimini Center for Economic Analysis
*
Address correspondence to: Theodore Palivos, Department of Economics, University of Macedonia, 156 Egnatia Street, GR-540 06 Salonica, Greece; e-mail: tpalivos@uom.gr.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper characterizes the saving rate in the Ramsey–Cass–Koopmans model analytically with a general production function when there exist both exogenous and endogenous growth. It points out conditions involving the share of capital and the elasticities of factor and intertemporal substitution under which the saving rate path to its steady-state value exhibits overshooting or undershooting or is monotonic. Simulations illustrate these interesting dynamics. The paper also identifies the general class of production functions that render the saving rate constant along the entire transition path and hence make the Ramsey–Cass–Koopmans model isomorphic to that of Solow and Swan.

Keywords

Ramsey–Cass–Koopmans ModelSaving RateElasticities of Substitution
Type
Articles
Information
Macroeconomic Dynamics , Volume 14 , Issue 4 , September 2010 , pp. 482 - 500
Copyright
Copyright © Cambridge University Press 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Antràs, Pol (2004) Is the U.S. aggregate production function Cobb–Douglas? New estimates of the elasticity of substitution. Contributions to Macroeconomics 4 (1), Article 4.Google Scholar
Barelli, Paulo and Pessôa, Samuel de A. (2003) Inada conditions imply that production function must be asymptotically Cobb–Douglas. Economics Letters 81, 361–363.CrossRefGoogle Scholar
Barro, Robert J. and Sala-i-Martin, Xavier (2004) Economic Growth, 2nd ed.New York: McGraw–Hill.Google Scholar
Biederman, Daniel K. and Goenner, Cullen F. (2008) A life-cycle approach to the intertemporal elasticity of substitution. Journal of Macroeconomics 30, 481–498.CrossRefGoogle Scholar
Bosworth, Barry, Burtless, Gary and Sabelhaus, John (1991) The decline in saving: Evidence from household surveys. Brookings Papers on Economic Activity 1, 183–256.CrossRefGoogle Scholar
Brunner, Martin and Strulik, Holger (2002) Solution of perfect foresight saddlepoint problems: A simple method and applications. Journal of Economic Dynamics and Control 26, 737–753.CrossRefGoogle Scholar
Chari, Varadarajan V., Kehoe, Patrick J., and McGrattan, Ellen R. (1996) The Poverty of Nations: A Quantitative Exploration. NBER Working Paper 5414.CrossRefGoogle Scholar
Christiano, Lawrence J. (1989) Understanding Japan's saving rate: The reconstruction hypothesis. Federal Reserve Bank of Minneapolis Quarterly Review 13, 10–25.Google Scholar
Duffy, John B. and Papageorgiou, Chris (2000) A cross-country empirical investigation of the aggregate production function specification. Journal of Economic Growth 5, 87–120.CrossRefGoogle Scholar
Gómez, Manuel A. (2008) Dynamics of the saving rate in the neoclassical growth model with CES production. Macroeconomic Dynamics 12, 195–210.CrossRefGoogle Scholar
Guha, Subrata (2008) Dynamics of the consumption–capital ratio, the saving rate, and the wealth distribution in the neoclassical growth model. Macroeconomic Dynamics 12, 481–502.CrossRefGoogle Scholar
Hall, Robert E. (1988) Intertemporal substitution in consumption. Journal of Political Economy 96, 339–357.CrossRefGoogle Scholar
Jones, Larry E. and Manuelli, Rodolfo E. (1990) A convex model of equilibrium growth: Theory and policy implications. Journal of Political Economy 98, 1008–1038.CrossRefGoogle Scholar
Jones, Larry E. and Manuelli, Rodolfo E. (2005) Neoclassical models of endogenous growth: The effects of fiscal policy, innovation and fluctuations. In Aghion, Philippe and Durlauf, Steven N. (eds.), Handbook of Economic Growth 1, pp. 13–65. Amsterdam: Elsevier.Google Scholar
Karagiannis, Giannis, Palivos, Theodore, and Papageorgiou, Chris (2005) Variable elasticity of substitution and economic growth. In Diebolt, Claude and Kyrtsou, Catherine (eds.), New Trends in Macroeconomics, pp. 21–37. Berlin: Springer-Verlag.CrossRefGoogle Scholar
King, Robert G., Plosser, Charles I., and Rebelo, Sergio T. (1988) Production, growth and business cycles: I. The basic neoclassical model. Journal of Monetary Economics 21, 195–232.CrossRefGoogle Scholar
Klump, Rainer and de La Grandville, Olivier (2000) Economic growth and the elasticity of substitution: Two theorems and some suggestions. American Economic Review 90, 282–291.CrossRefGoogle Scholar
Klump, Rainer, McAdam, Peter, and Willman, Alpo (2007) Factor substitution and factor augmenting technical progress in the US: A normalized supply-side systems approach. Review of Economics and Statistics 89, 183–192.CrossRefGoogle Scholar
Klump, Rainer and Preissler, Harald (2000) CES production functions and economic growth. Scandinavian Journal of Economics 102, 41–56.CrossRefGoogle Scholar
Kurz, Mordecai (1968) The general instability of a class of competitive growth processes. Review of Economic Studies 35, 155–174.CrossRefGoogle Scholar
Litina, Anastasia and Palivos, Theodore (2008) Do Inada conditions imply that production function must be asymptotically Cobb–Douglas? A comment. Economics Letters 99, 498–499.CrossRefGoogle Scholar
Loyaza, Norman, Schmidt-Hebbel, Klaus, and Serven, Luis (2000) Saving in developing countries: An overview. World Bank Economic Review 14, 393–414.CrossRefGoogle Scholar
Maddison, Angus (1992) A long-run perspective on saving. Scandinavian Journal of Economics 94, 181–196.CrossRefGoogle Scholar
Masanjala, Winford H. and Papageorgiou, Chris (2004) The Solow model with CES technology: Nonlinearities and parameter heterogeneity. Journal of Applied Econometrics 19, 171–201.CrossRefGoogle Scholar
Miyagiwa, Kaz and Papageorgiou, Chris (2003) Elasticity of substitution and growth: Normalized CES in the Diamond model. Economic Theory 21, 155–165.CrossRefGoogle Scholar
Miyagiwa, Kaz and Papageorgiou, Chris (2007) Endogenous aggregate elasticity of substitution. Journal of Economic Dynamics and Control 31, 2899–2919.CrossRefGoogle Scholar
Nishimura, Kazuo and Venditti, Alain (2004) Indeterminacy and the role of factor substitutability. Macroeconomic Dynamics 8, 436–465.CrossRefGoogle Scholar
Ogaki, Masao and Reinhart, Carmen M. (1998) Measuring intertemporal substitution: The role of durable goods. Journal of Political Economy 106, 1078–1098.CrossRefGoogle Scholar
Palivos, Theodore and Karagiannis, Giannis (in press) The elasticity of substitution as an engine of growth. Macroeconomic Dynamics.Google Scholar
Palivos, Theodore, Wang, Ping, and Zhang, Jianbo (1997) On the existence of balanced growth equilibrium. International Economic Review 38, 205–224.CrossRefGoogle Scholar
Papageorgiou, Chris and Saam, Marianne (2008) Two-level CES production technology in the Solow and Diamond growth models. Scandinavian Journal of Economics 110, 119–143.CrossRefGoogle Scholar
Pitchford, John D. (1960) Growth and the elasticity of substitution. Economic Record 36, 491–504.CrossRefGoogle Scholar
Revankar, Nagesh S. (1971) A class of variable elasticity of substitution production functions. Econometrica 39, 61–71.CrossRefGoogle Scholar
Smetters, Kent (2003) The (interesting) dynamic properties of the neoclassical growth model. Review of Economic Dynamics 6, 697–707.CrossRefGoogle Scholar
Smith, William T. (2006) A closed form solution to the Ramsey model. Contributions to Macroeconomics 6 (1), Article 3.Google Scholar
Solow, Robert M. (1956) A contribution to the theory of economic growth. Quarterly Journal of Economics 70, 65–94.CrossRefGoogle Scholar
Tease, Warren, Dean, Andrew, Elmeskov, Jorgen, and Hoeller, Peter (1991) Real interest rate trends: The influence of saving, investment and other factors. OECD Economic Studies 17, 107–144.Google Scholar
Turnovsky, Sthephen J. (2002) Intertemporal and intratemporal substitution and the speed of convergence in the neoclassical growth model. Journal of Economic Dynamics and Control 26, 1765–1785.CrossRefGoogle Scholar
Turnovsky, Stephen J. (2008) The role of factor substitution in the theory of economic growth and income distribution: Two examples. Journal of Macroeconomics 30, 604–629.CrossRefGoogle Scholar