The (Interesting) Dynamic Properties of the Neoclassical Growth Model with CES Production

Kent Smetters ()

Review of Economic Dynamics, 2003, vol. 6, issue 3, pages 697-707

Abstract: Despite being the standard growth model for several decades, little is actually known analytically about the dynamic properties of the neoclassical Ramsey-Cass-Koopmans growth model. This papers derives analytically the properties of the endogenous savings rate when technology takes the Constant Elesticity of Substitution (CES) form. For a factor substitution elasticity between capital and labor less than unity, the saving rate decreases along the transition path after the capital stock reaches a critical value identified analytically herein. But before reaching this critical value, the saving rate might increase and so, taken as a whole, the saving rate path might manifest 'overshooting.' Similarly, for a factor substitution elasticity greater than unity, the saving rate increases along the transistion path after the capital stock reaches a critical value. Before reaching this critical value, the saving rate might decrease and the saving rate path might manifest 'undershooting.' A simulation illustrating these interesting dynamics is presented. (Copyright: Elsevier)

Keywords: The Ramsey-Cass-Koopmans model; saving; CES production (search for similar items in EconPapers)
JEL-codes: E20 O41 O10 (search for similar items in EconPapers)
Date: 2003
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