Title: A Further Inspection of the Stochastic Growth Model by an Analytical Approach
Reference Number: 1031
Publication Date: May 2001
JEL Classifcation: E13

Paul Sau-Him Lau
The University of Hong Kong

Campbell (1994) argues that a clear understanding of the stochastic growth model can best be achieved by working out an approximate analytical solution, and suggests loglinearizing the Euler equation and the intertemporal resource constraint. The paper follows his idea but streamlines the presentation of the loglinear approximate solution for the neoclassical model of capital accumulation. By focusing on the partial elasticity of capital stock with respect to its lag term, this paper is able to confirm analytically some conclusions based on numerical calculations in previous papers, and to clarify why simpler solution arises in several special cases.

Published in Macroeconomic Dynamics 6:5, Nov 2002, pp. 748-757

Key words: Stochastic growth, Approximate analytical solution

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Last modified: 01/23/2007