Stochastic stability of endogenous growth:Theory and applications

Raouf Boucekkine (), Patrick Pintus and Benteng Zou

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: We examine the issue of stability of stochastic endogenous growth. First, stochastic stability concepts are introduced and applied to stochastic linear homogenous differen- tial equations to which several stochastic endogenous growth models reduce. Second, we apply the mathematical theory to two models, starting with the stochastic AK model. It’s shown that in this case exponential balanced paths, which characterize optimal trajectories in the absence of uncertainty, are not robust to uncertainty: the economy may almost surely collapse at exponential speed even though productivity is initially arbitrarily high. Finally, we revisit the seminal global diversification endogenous growth model (Obstfeld, 1994): taking into account stochastic stability calls for a redefinition of the mean growth concept, which leads to revisit the established wisdom on the growth effect of global diversification.

Keywords: Endogenous growth; stochastic growth; stochastic stability; AK model; Global diversification (search for similar items in EconPapers)
JEL-codes: C61 C62 O40 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-gro and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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https://hdl.handle.net/10993/23041 (application/pdf)

Related works:
Working Paper: Stochastic Stability of Endogenous Growth: Theory and Applications (2015)
Working Paper: Stochastic Stability of Endogenous Growth: Theory and Applications (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:15-09

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