A Golden Formula in Neoclassical-Growth Models with Brownian-Motion Shocks

Darong Dai ()

Scottish Journal of Political Economy, 2014, vol. 61, issue 2, 211-228

Abstract: type="main" xml:id="sjpe12042-abs-0001">

In the paper, a Golden Formula, which does not depend on the specification of production and preference functions, is established to reveal that time-average of the growth rate of optimal capital accumulation will converge to a constant, which is endogenously determined by relevant parameters, almost surely. The Golden Formula naturally implies surprisingly interesting and also intrinsic economic relations between some important macroeconomic variables; for example, it serves as a direct bridge between the modified Golden Rule and the modified Ramsey Rule. Furthermore, it indeed subsumes and hence substantially extends the classical Golden Rule in deterministic theory.

Date: 2014
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