Reference : Stochastic stability of endogenous growth: The AK case
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Business & economic sciences : Macroeconomics & monetary economics
Stochastic stability of endogenous growth: The AK case
Boucekkine, Raouf mailto [Aix-Marseille University]
Zou, Benteng mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
[en] Optimal growth, AK model, Ito stochastic differential equation, bal- anced growth paths, stochastic stability
[en] This note studies the stochastic stability of the standard AK growth model un-
der uncertain output technology. Capital accumulation follows a stochastic lin-
ear homogenous differential equation. It’s shown that exponential balanced paths,
which characterize optimal trajectories in the absence of uncertainty, are not robust
to uncertainty. Precisely, it’s demonstrated that the economy almost surely col-
lapses at exponential speed even though productivity is initially arbitrarily high.

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