On the solution of the growth model with investment-specific technological change

Jesus Fernandez-Villaverde and Juan F Rubio-Ramirez

Applied Economics Letters, 2007, vol. 14, issue 8, 549-553

Abstract: Recent work by Greenwood et al. (1997, 2000) and Fisher (2003) has emphasized the importance of investment-specific technological change as a main driving force behind long-run growth and the business cycle. This article shows how the growth model with investment-specific technological change has a closed-form solution if capital fully depreciates. This solution furthers our understanding of the model and it constitutes a useful benchmark to check the accuracy of numerical procedures to solve dynamic macroeconomic models in cases with several state variables.

Date: 2007
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DOI: 10.1080/13504850600592564

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