A New Solution to an Old Problem: a Temporary Equilibrium Version of the Ramsey Model

digital

Article

Magazine

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI

Fascicle

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI - 2020 - 3

Title

A New Solution to an Old Problem: a Temporary Equilibrium Version of the Ramsey Model

Author

Enrico Bellino

Publisher

Vita e Pensiero

Format

Article |

Pdf

Online da

02-2021

Doi

10.26350/000518_000051

Issn

0035-676X (print) | 1827-7918 (digital)

€ 6.00

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Description

According to the prevailing literature on capital accumulation with infinite horizon, convergence toward the optimal path requires that individuals are able to select the unique convergent (saddle) path. This is tantamount to assuming that individuals have ‘‘colossal’’ rational capabilities. Conversely, any minor deviation from the saddle-path would inevitably lead to a crash onto a zero per-capita consumption path. This paper aims to show that this contraposition is false. It will be proved that an asymptotic convergence result to the Ramsey steady state path is obtained for an individual who optimizes his present and future consumption levels step by step in each period, gauging the costs and benefits of current savings on future consumption levels, momentarily assumed to be equal to net income (this assumption of future zero-net savings is then revised at each subsequent period). A ‘‘market’’ solution is here provided, using a temporary equilibrium approach a` la Hicks.