Optimality of Ramsey–Euler policy in the stochastic growth model

Tapan Mitra and Santanu Roy

Journal of Economic Theory, 2017, vol. 172, issue C, 1-25

Abstract: For the canonical one sector stochastic optimal growth model, we outline a new set of conditions for a policy function that satisfies the Ramsey–Euler equation to be optimal. An interior Ramsey–Euler policy function is optimal if, and only if, it is continuous or alternatively, if, and only if, both consumption and investment are non-decreasing in output. In particular, we show that under these conditions, the stochastic paths generated by the policy must satisfy the transversality condition; the implication is that in applying our result, one does not need to verify the transversality condition when checking for optimality of a policy function.

Keywords: Stochastic growth; Optimal economic growth; Uncertainty; Transversality condition; Optimality; Euler equation (search for similar items in EconPapers)
JEL-codes: C6 D9 O41 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022053117300790
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:172:y:2017:i:c:p:1-25

DOI: 10.1016/j.jet.2017.08.001

Access Statistics for this article

Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell

More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu ().