Aldo Rustichini

A VINTAGE CAPITAL MODEL OF INVESTMENT AND GROWTH: THEORY AND EVIDENCE

Publisher Summary This chapter presents a model that combines a vintage capital structure with elements of the naive accelerator in an infinitely lived representative agent framework. It discusses empirical tests of the model and presents convincing evidence to support the vintage structure framework. The so-called naive accelerator theory was motivated by empirical observations and sought to explain the strong volatility of investment expenditures. According to the naive accelerator, increases in demand, which necessitate a higher productive capacity, initiate sudden investment expenditures. These expenditures may then suddenly stop if the growth of demand subsides, giving rise to amplified swings in investment. The accelerator theory in this naive form was criticized for its treatment of expectations, its lack of an explicit equilibrium framework, and its neglect of issues concerning dynamic adjustment. The flexible accelerator and adjustment cost theories of investment that were subsequently developed addressed these criticisms by explicitly introducing a microeconomic decision-making framework.

A note on a new class of solutions to dynamic programming problems arising in economic growth

Abstract We provide exact solutions for a class of stochastic dynamic programming problems in growth theory involving pairs of constant relative risk aversion utility functions and CES technologies. This generalizes the solutions for the well-known case of logarithmic utility coupled with Cobb-Douglas production functions. We are also able to incorporate depreciation schemes through a vintage capital approach.

COMMODITY PAIR DESIRABILITY AND THE CORE EQUIVALENCE THEOREM

Publisher Summary This chapter discusses the core-Walras equivalence in economies with a continuum of agents and with an infinite-dimensional commodity space. It discusses the general importance of infinite-dimensional commodity spaces in economics. Infinite-dimensional commodity spaces arise quite naturally in economics. In particular, an infinite-dimensional commodity space may be desirable in problems involving an infinite time horizon, uncertainty about the possibly infinite number of states of nature of the world, or infinite varieties of commodity characteristics. The chapter discusses core-Walras equivalence results for perfectly competitive economies with an infinite-dimensional commodity space that is sufficiently general to include all of the spaces that have been found most useful in equilibrium analysis. In infinite-dimensional commodity space whose positive cone has a nonempty—norm—interior, core-Walras equivalence results can be obtained under quite mild assumptions. The chapter also reviews notation, definitions, and some results on Banach lattices and the integration of correspondences.