IS THERE A GOLDEN RULE FOR THE STOCHASTIC SOLOW GROWTH MODEL?

Schenk–Hoppé, Klaus Reiner
Authors registered in the RePEc Author Service: Klaus Reiner Schenk-Hoppé

Macroeconomic Dynamics, 2002, vol. 6, issue 4, 457-475

Abstract: This paper analyzes the dependence of average consumption on the saving rate in a one-sector neoclassical Solow growth model with production 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 that depends continuously on the saving rate. This result enables us to prove the existence of a golden-rule saving rate that 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 functions.

Date: 2002
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Working Paper: Is There a Golden Rule for the Stochastic Solow Growth Model ?
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:6:y:2002:i:04:p:457-475_01

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