Working Paper #2012-011
Do Ak models really lack transitional dynamics?
Contrary to a popular belief, the most popular Ak growth models display
transitional dynamics once the representative agent and complete markets
as- sumptions are overturned. The class of models is identi.ed with
diminishing- returns at individual but constant-returns at aggregate due
to externality e¤ects. Under incomplete markets, the former implies that
dynasties with a lower levels of initial capital grow faster. This is
picked up by the aggregate economy that passes through a long
transitional period before it converges to its balanced growth path.
During the transition period, aggregate con- sumption and output grow at
the same rate but higher than that of capital.
- Keywords
-
- Transitional dynamics
- Ak model
- inequality dynamics
- heterogeneous households
- incomplete capital market JEL Classi.cation: D3
- E
- O4
Cite this as
APA 7th ed.Getachew, Y. Y. (2012). Do Ak models really lack transitional dynamics? (UNU-MERIT Working Paper No. 2012-011). UNU-MERIT. https://unu-merit.nl/publications/working-papers/abstract/?id=4657