On the Solution of the Growth Model with Investment-Specific Technological Change
Jesús Fernández-Villaverde and Juan Francisco Rubio-Ramírez
Working Paper 2004-39
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.
JEL classification: E10, E32, D90
Key words: growth model with investment-specific technological change, closed-form solution, long-run growth, business cycle fluctuations
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Please address questions regarding content to Juan F. Rubio-Ramírez, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309-4470, USA, 404-498-8057, firstname.lastname@example.org.