Chapter 7 An Explicit Nonstationary Stochastic Growth Model

Abstract

We perform a comprehensive Monte Carlo simulation analysis of a variant of the nonstationary continuous-time stochastic growth model with Cobb–Douglas technology developed in Feicht and Stummer (2010), where for every (short-term, middle-term, long-term) time horizon the corresponding dynamic transitional sample path values were derived explicitly, that is, in closed form.

In particular, we study how much the outcoming (e.g., German empirical data adjusted) economy values are affected by changes of the involved economically meaningful parameters. Furthermore, we obtain realistically low savings rates, as well as a reasonably fast speed of recovery in situations where the abovementioned model economy is suddenly and considerably disturbed by a “crash” (macroeconomic disaster).

Citation

Feicht, R. and Stummer, W. (2011), "Chapter 7 An Explicit Nonstationary Stochastic Growth Model", de La Grandville, O. (Ed.) Economic Growth and Development (Frontiers of Economics and Globalization, Vol. 11), Emerald Group Publishing Limited, Leeds, pp. 141-202. https://doi.org/10.1108/S1574-8715(2011)0000011012