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Article
Inspecting the Mechanism Exactly: A Closed-form Solution to a Stochastic Growth Model
The B.E. Journal of Macroeconomics (2010)
  • William T Smith, University of Memphis
Abstract

This paper considers the canonical stochastic growth model with CRRA utility and Cobb-Douglas technology. It obtains a closed-form solution for the case where capital's share is equal to the reciprocal of the intertemporal elasticity of substitution. This provides a useful benchmark that illuminates the transmission mechanism under uncertainty. In particular, it highlights the complicated ways in which risk and nonlinearities interact, via Jensen's inequality, to affect the steady state capital stock.

Keywords
  • risk,
  • growth,
  • transmission mechanism
Publication Date
March 30, 2010
Citation Information
William T Smith. "Inspecting the Mechanism Exactly: A Closed-form Solution to a Stochastic Growth Model" The B.E. Journal of Macroeconomics Vol. 7 Iss. 1 (2010)
Available at: http://works.bepress.com/william_smith/3/