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IS THERE A GOLDEN RULE FOR THE STOCHASTIC SOLOW GROWTH MODEL?

Published online by Cambridge University Press:  16 July 2002

Klaus Reiner Schenk–Hoppé
Affiliation:
Institute for Empirical Research in Economics, University of Zurich

Abstract

This paper analyzes the dependence of average consumption on the saving rate in a one-sector neoclassical Solow growth model with production shocks and stochastic rates of population growth and depreciation where arbitrary ergodic processes are considered. We show that the long-run behavior of the stochastic capital intensity, and hence average consumption along any sample path, is uniquely determined by a random fixed point that depends continuously on the saving rate. This result enables us to prove the existence of a golden-rule saving rate that maximizes average consumption per capita. We also show that the golden-rule path is dynamically efficient. The results are illustrated numerically for Cobb–Douglas and CES production functions.

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ARTICLES
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© 2002 Cambridge University Press

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IS THERE A GOLDEN RULE FOR THE STOCHASTIC SOLOW GROWTH MODEL?
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IS THERE A GOLDEN RULE FOR THE STOCHASTIC SOLOW GROWTH MODEL?
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