On the Invariance of the Rate of Return to Convex Adjustment Costs

Andrew Abel

No 8635, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The Modified Golden Rule, which relates the rate of return on capital and the growth rate of the capital stock along long-run growth paths that maximize the utility of a representative infinitely-lived consumer, is invariant to the introduction of convex capital adjustment costs. Therefore, along balanced growth paths in neoclassical optimal growth models with an exogenous long-run growth rate of capital, the rate of return is invariant to the introduction of convex adjustment costs, though the capital-labor ratio is reduced along such paths. In AK models, convex adjustment costs reduce the growth rate and rate of return on capital.

JEL-codes: E2 (search for similar items in EconPapers)
Date: 2001-12
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Andrew B. Abel, 2002. "On the Invariance of the Rate of Return to Convex Adjustment Costs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 586-601, July.

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Journal Article: On the Invariance of the Rate of Return to Convex Adjustment Costs (2002)
Working Paper: On the Invariance of the Rate of Return to Convex Adjustment Costs (2001)
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