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

See all articles by Jesús Fernández-Villaverde

Jesús Fernández-Villaverde

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Juan Francisco Rubio-Ramirez

Federal Reserve Bank of Atlanta - Research Department

Date Written: December 2004

Abstract

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

Fernández-Villaverde, Jesús and Rubio-Ramirez, Juan Francisco, On the Solution of the Growth Model with Investment-Specific Technological Change (December 2004). FRB of Atlanta Working Paper No. 2004-39. Available at SSRN: https://ssrn.com/abstract=665201 or http://dx.doi.org/10.2139/ssrn.665201

Jesús Fernández-Villaverde

University of Pennsylvania - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Juan Francisco Rubio-Ramirez (Contact Author)

Federal Reserve Bank of Atlanta - Research Department ( email )

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HOME PAGE: http://www.econ.umn.edu/~rubio

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