Is There a Golden Rule for the Stochastic Solow Growth Model?

Zurich IEER Working Paper No. 33

25 Pages Posted: 16 Oct 2000

See all articles by Klaus Reiner Schenk-Hoppé

Klaus Reiner Schenk-Hoppé

University of Manchester - Department of Economics; Norwegian School of Economics (NHH) - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 2001

Abstract

This paper analyzes the dependence of average consumption on the saving rate in a one-sector neoclassical Solow growth model with production shocks and stochastic rates of population growth and depreci-ation where arbitrary ergodic processes are considered. We show that the long-run behavior of the stochastic capital intensity, and hence average consumption along any sample-path, is uniquely determined by a random fixed point which depends continuously on the saving rate. This result enables us to prove the existence of a golden rule saving rate which maximizes average consumption per capita. We also show that the golden rule path is dynamically efficient. The results are illustrated numerically for Cobb-Douglas and CES production function.

Keywords: Stochastic Solow model, Golden Rule, random fixed points, random dynamical systems.

JEL Classification: E13, C60, O41

Suggested Citation

Schenk-Hoppé, Klaus Reiner, Is There a Golden Rule for the Stochastic Solow Growth Model? (January 2001). Zurich IEER Working Paper No. 33, Available at SSRN: https://ssrn.com/abstract=230018 or http://dx.doi.org/10.2139/ssrn.230018

Klaus Reiner Schenk-Hoppé (Contact Author)

University of Manchester - Department of Economics ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

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