Intertemporal and intratemporal substitution, and the speed of convergence in the neoclassical growth model

✍ Scribed by Stephen J. Turnovsky

• Publisher: Elsevier Science
• Year: 2002
• Tongue: English
• Weight: 565 KB
• Volume: 26
• Category: Article
• ISSN: 0165-1889
• DOI: 10.1016/s0165-1889(01)00094-x

✦ Synopsis

This paper re-examines the speed of convergence in a one-sector growth model under fairly general conditions with respect to both production and preferences. We investigate the response of the rate of convergence to the intratemporal elasticity of substitution in production, and to the intertemporal and intratemporal elasticities of substitution in consumption. The speed of convergence is highly sensitive to the ÿrst two elasticities, but not to the third, which is re ected primarily in the agent's labor-leisure choice. Small deviations in the elasticities from standard benchmark parameters can lead to signiÿcant variations in the rate of convergence, encompassing the range of typical empirical estimates.