Optimal Policy and Consumption Smoothing Effect in the Time to Build AK Model

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Publication details

JournalEconomic Theory
DateE-pub ahead of print - 3 Nov 2010
DatePublished (current) - Aug 2012
Issue number3
Volume50
Number of pages35
Pages (from-to)635-669
Early online date3/11/10
Original languageEnglish

Abstract

In this paper, the dynamic programming approach is exploited in order to identify the closed loop policy function, and the consumption smoothing mechanism in an endogenous growth model with time to build, linear technology and irreversibility constraint in investment. Moreover, the link among the time to build parameter, the real interest rate, and the magnitude of the smoothing effect is deeply investigated and compared with what happens in a vintage capital model characterized by the same technology and utility function. Finally, we have analyzed the effect of time to build on the speed of convergence of the main aggregate variables.

    Research areas

  • Time-to-build, AK model, Dynamic programming, Optimal strategies, Closed loop policy, E22, E32, O40

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