TY - UNPB

T1 - A new solution to an old problem: a temporary equilibrium version of the Ramsey model

AU - Bellino, Enrico

PY - 2018

Y1 - 2018

N2 - Convergence toward the optimal capital accumulation path in infinite horizon has always been tackled in the literature
by means of the assumption that individuals (or a central planner) are able to select the unique convergent (saddle-)path among the infinitely many paths which satisfy the equi-marginality condition of the intertemporal choice problem (the Euler’s condition). This is tantamount to assuming that individuals have 'colossal' rational capabilities. Conversely, any minor deviation from the saddle-path would inevitably lead to a crash on a 0 per-capita consumption path. This paper aims to show that this contraposition is false. An asymptotic convergence result to the optimal equilibrium path will be obtained for an individual who plans myopically, that is, that optimizes his present and future consumption levels under a
rudimentary hypothesis about future savings. He then partially readjusts his choices in each subsequent period, like people normally do. A similar result was already proved by the author for the central planner problem. In this paper, a 'market' solution is provided, following a temporary equilibrium approach à la Hicks.

AB - Convergence toward the optimal capital accumulation path in infinite horizon has always been tackled in the literature
by means of the assumption that individuals (or a central planner) are able to select the unique convergent (saddle-)path among the infinitely many paths which satisfy the equi-marginality condition of the intertemporal choice problem (the Euler’s condition). This is tantamount to assuming that individuals have 'colossal' rational capabilities. Conversely, any minor deviation from the saddle-path would inevitably lead to a crash on a 0 per-capita consumption path. This paper aims to show that this contraposition is false. An asymptotic convergence result to the optimal equilibrium path will be obtained for an individual who plans myopically, that is, that optimizes his present and future consumption levels under a
rudimentary hypothesis about future savings. He then partially readjusts his choices in each subsequent period, like people normally do. A similar result was already proved by the author for the central planner problem. In this paper, a 'market' solution is provided, following a temporary equilibrium approach à la Hicks.

KW - Optimal capital accumulation

KW - Ramsey-Cass-Koopmans model

KW - myopic behaviour

KW - saddle-path (in)stability

KW - temporary equilibrium

KW - Optimal capital accumulation

KW - Ramsey-Cass-Koopmans model

KW - myopic behaviour

KW - saddle-path (in)stability

KW - temporary equilibrium

UR - http://hdl.handle.net/10807/122130

M3 - Working paper

SN - 978-88-343-3760-8

BT - A new solution to an old problem: a temporary equilibrium version of the Ramsey model

PB - Vita e Pensiero

ER -