Poverty Traps and Business Cycles in a Stochastic Overlapping Generations Economy with S-shaped Law of Motion

Klaus Schenk-Hoppé

No 02-13, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: This paper contributes to the understanding of stochastic economic dynamics with S-shaped law of motion. Applying random dynamical systems theory, we obtain a complete analysis of a stochastic OLG growth model. In the long-run the economy converges either to a state with no capital (poverty trap) or a sample path of a random fixed point (business cycle). The threshold capital stock separating both regimes is a random variable that depends on the future realization of the shocks; this critical level cannot be identified using past observations. Supply of outside capital therefore has an uncertain effect. Policy recommendations are given which cannot be obtained employing Markov equilibria. A numerical illustration is provided.

Keywords: S-shaped stochastic law of motion; random dynamical systems; poverty traps; business cycles; production shocks (search for similar items in EconPapers)
JEL-codes: C62 D91 E32 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2002-10
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Poverty traps and business cycles in a stochastic overlapping generations economy with S-shaped law of motion (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:0213

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