Uncertain horizon and stability. Analysis in an optimal growth model

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Abstract

In a one-sector optimal growth model with uncertainty about production optimal capital stocks converge in distribution to a stochastic modified golden rule [see, for example Brock and Mirman (1972, 1973)]. We show that such a result cannot be obtained, in general, if in addition to the random one-period shocks to production there is also a lasting shock to the production function at some random date in the future; however, the conditional optimal capital stocks 'bunch together' over time, i.e., a turnpike result for optimal programs is proved.

Original languageEnglish
Pages (from-to)445-453
Number of pages9
JournalJournal of Economic Dynamics and Control
Volume11
Issue number3
DOIs
StatePublished - Sep 1987

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