General Equilibrium Vintage Capital Growth Models Displaying Periodic Solutions: A Theoretical Example

Raouf Boucekkine (), Marc Germain and Omar Licandro ()
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Marc Germain: Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium

No 1996032, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: In a dynamic general equilibrium setup, this paper highlights the role of vintages and creative destruction in business fluctuations. By stressing the forward-looking characteristic of the optimal scrapping rule, we use a standard rational expectations argument to show the constancy of the scrapping function in a linear utility function framework. Secondly, we prove that equilibrium output shows a purely periodic behavior around an exponential growth trend, the pattern of the cycle being determined by the pattern of initial conditions. Actually, this paper points at the so-called echoe effects as a relevant economic fluctuations source, an issue rather neglected by theorists since the publication of Solow et alii (1966) seminal paper.

Date: 1996-06-01
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:1996032

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