Finance Papers

Document Type

Journal Article

Date of this Version

7-2002

Publication Source

Review of Economic Dynamics

Volume

5

Issue

3

Start Page

586

Last Page

601

DOI

10.1006/redy.2001.0158

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. Journal of Economic Literature Classification Number: E2.

Copyright/Permission Statement

© 2002. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Embargo Date

7-4-2004

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Date Posted: 27 November 2017

This document has been peer reviewed.