OPTIMAL TRANSITION DYNAMICS IN THE LEONTIEF TWO‐SECTOR GROWTH MODEL WITH DURABLE CAPITAL: THE CASE OF CAPITAL INTENSIVE CONSUMPTION GOODS*

Minako Fujio

The Japanese Economic Review, 2009, vol. 60, issue 4, 490-511

Abstract: We present results on undiscounted optimal policies in the Leontief two‐sector growth model with durable capital. Unlike the results with a labour intensive consumption goods sector, we show that a monotonic optimal programme is only one special case out of many richer possibilities of transition dynamics. Depending on the initial capital stock, and a key parameter ζ that could be interpreted as a marginal rate of transformation of capital between today and tomorrow, an optimal programme may converge to a period‐two cycle; and even when it converges to the golden rule stock, it can do so (damped) cyclically or with a “jump”.

Date: 2009
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