On the Invariance of the Rate of Return to Convex Adjustment Costs

No 8649, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The Modified Golden Rule, which relates the rate of return on capital and the growth rate of the capital stock along long-run growth paths that maximize the utility of a representative infinitely-lived consumer, is invariant to the introduction of convex capital adjustment costs. Therefore, along balanced growth paths in neoclassical optimal growth models with an exogenous long-run growth rate of capital, the rate of return is invariant to the introduction of convex adjustment costs, though the capital-labor ratio is reduced along such paths. In AK models, convex adjustment costs reduce the growth rate and rate of return on capital.

JEL-codes: E2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn
Date: Written 2001-12
Note: AP EFG
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Related works:
Working Paper: On the Invariance of the Rate of Return to Convex Adjustment Costs (2001)
Journal Article: On the Invariance of the Rate of Return to Convex Adjustment Costs
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