On the Solution of the Growth Model with Investment-Specific Technological Change
FRB of Atlanta Working Paper No. 2004-39
11 Pages Posted: 11 Feb 2005
Date Written: December 2004
Recent work by Greenwood, Hercowitz, and Krusell (1997 and 2000) and Fisher (2003) has emphasized the importance of investment-specific technological change as a main driving force behind long-run growth and the business cycle. This paper shows how the growth model with investment-specific technological change has a closed-form solution if capital fully depreciates. This solution furthers our understanding of the model, and it constitutes a useful benchmark to check the accuracy of numerical procedures to solve dynamic macroeconomic models in cases with several state variables.
Keywords: Growth model with investment-specific technological change, closed-form solution, long-run growth, business cycle fluctuations
JEL Classification: E10, E32, D90
Suggested Citation: Suggested Citation