Endogenous capital utilization in a neoclassical growth model |
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Authors: | Beatriz Rumbos Leonardo Auernheimer |
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Institution: | (1) Instituto Tecnológico Autónomo de México, Mexico;(2) Texas A&M University, U.S.A. |
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Abstract: | This paper introduces a variable rate of capital utilization and depreciation into a modified Ramsey-type neoclassical growth
model via the well-known concept of pure user cost. The optimal utilization rate is found to be determined by the opportunity
cost of holding capital or the net real interest rate. As a consequence, this rate may vary in the short run, so total services
of capital become a control rather than a state variable. Furthermore, the introduction of a variable utilization rate yields
a slower rate of convergence toward the steady state, inducing more persistence in the transitional dynamics. To illustrate
how the endogenous choice of utilization acts on the system, some simulations are carried out, including the transition period
when there is a temporary fall in the exogenous real interest rate. |
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Keywords: | |
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