Do Ak models really lack transitional dynamics?

Getachew, Yoseph Yilma (2012). Do Ak models really lack transitional dynamics?. UNU-MERIT.

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  • Author Getachew, Yoseph Yilma
    Title Do Ak models really lack transitional dynamics?
    Publication Date 2012
    Publisher UNU-MERIT
    Abstract Contrary to a popular belief, the most popular Ak growth models display transitional dynamics once the representative agent and complete markets as- sumptions are overturned. The class of models is identi.ed with diminishing- returns at individual but constant-returns at aggregate due to externality e¤ects. 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 con- sumption and output grow at the same rate but higher than that of capital.
    Keyword Transitional dynamics
    Ak model
    Inequality dynamics
    Heterogeneous households
    Incomplete capital market
    JEL D3
    Copyright Holder UNU-MERIT
    Copyright Year 2012
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    Created: Wed, 11 Dec 2013, 17:05:29 JST