Stochastic growth with correlated production shocks

John B. Donaldson, Rajnish Mehra

Research output: Contribution to journalArticle

39 Citations (Scopus)

Abstract

This paper extends the stochastic growth model of Brock and Mirman [J. Econ. Theory 4 (1972), 497-513] to allow the production shocks to be correlated over time. The resultant optimal savings and consumption policies depend not only upon the current level of output but also upon the most recent realization of the random shock. The properties of these policy functions are studied and it is shown that the Markov process on output, capital stock and consumption resulting from the application of these policies converges to a stationary distribution.

Original languageEnglish (US)
Pages (from-to)282-312
Number of pages31
JournalJournal of Economic Theory
Volume29
Issue number2
DOIs
StatePublished - 1983
Externally publishedYes

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Stochastic growth
Markov process
Consumption and saving
Stationary distribution
Capital stock
Stochastic growth model
Policy function

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Stochastic growth with correlated production shocks. / Donaldson, John B.; Mehra, Rajnish.

In: Journal of Economic Theory, Vol. 29, No. 2, 1983, p. 282-312.

Research output: Contribution to journalArticle

Donaldson, John B. ; Mehra, Rajnish. / Stochastic growth with correlated production shocks. In: Journal of Economic Theory. 1983 ; Vol. 29, No. 2. pp. 282-312.
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