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
    E
    O4
    Copyright Holder UNU-MERIT
    Copyright Year 2012
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    Created: Wed, 11 Dec 2013, 17:05:29 JST