Is There a Golden Rule for the Stochastic Solow Growth Model ?

Klaus Reiner Schenk-Hoppé ()

No iewwp033, IEW - Working Papers from Institute for Empirical Research in Economics - IEW

Abstract: This paper analyzes the dependence of average consumption on the saving rate in a one-sector neoclassical Solow growth model with pro-duction shocks and stochastic rates of population growth and depreciation where arbitrary ergodic processes are considered. We show that the long-run behavior of the stochastic capital intensity, and hence average consumption along any sample-path, is uniquely determined by a random fixed point which depends continuously on the saving rate. This result enables us to prove the existence of a golden rule saving rate which maximizes average consumption per capita. We also show that the golden rule path is dynamically efficient. The results are illustrated numerically for Cobb–Douglas and CES production function.

Keywords: Stochastic Solow model; golden rule; random fixed points; random dynamical systems (search for similar items in EconPapers)
JEL-codes: E13 C60 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-dge
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Persistent link: http://EconPapers.repec.org/RePEc:zur:iewwpx:033

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