econ.studio
Ramsey-Cass-Koopmans Model
Section 5 of 16
Section 5

Notation & Variables

Quantities are written in per-worker terms unless otherwise marked. Aggregate counterparts use upper case. Time arguments are suppressed in derivations when no ambiguity arises.

Aggregates

SymbolNameDescription
K(t)K(t)Capital stockAggregate productive capital.
L(t)L(t)LabourPopulation: L(t)=L0entL(t) = L_0 e^{n t}.
Y(t)Y(t)OutputY=F(K,L)Y = F(K, L) with CRS.
C(t)C(t)Aggregate consumption=cL= c L.
I(t)I(t)Aggregate investment=K˙+δK= \dot K + \delta K.

Per-worker quantities

SymbolNameDefinition
kkCapital per workerk=K/Lk = K/L.
yyOutput per workery=f(k)y = f(k), with f(k)=F(k,1)f(k) = F(k, 1).
ccConsumption per workerc=C/Lc = C/L.
aaAsset holdings per workera=A/La = A/L; in equilibrium a=ka = k.
wwReal wagew=f(k)−kf′(k)w = f(k) - k f'(k).
rrReal interest rater=f′(k)−δr = f'(k) - \delta.

Parameters

SymbolNameRole
α\alphaCapital shareCobb-Douglas exponent on KK.
AATotal factor productivityScale of output.
δ\deltaDepreciation rateCapital lost per unit time.
nnPopulation growthPer-capita dilution.
ρ\rhoPure rate of time preferenceHousehold impatience.
θ\thetaInverse intertemporal elasticity of substitutionCurvature of uu; risk aversion under uncertainty. 1/θ1/\theta = EIS.

Endogenous objects (derived)

k∗k^*
Steady-state capital per worker. Solution of f′(k∗)=ρ+δf'(k^*) = \rho + \delta.
c∗c^*
Steady-state consumption per worker. c∗=f(k∗)−(n+δ)k∗c^* = f(k^*) - (n + \delta) k^*.
kGRk_{GR}
Golden-rule capital. Solution of f′(kGR)=n+δf'(k_{GR}) = n + \delta.
μ(t)\mu(t)
Current-value co-state on capital - the shadow price of one extra unit of kk.
λ−\lambda^-
Stable eigenvalue of the linearized system. Convergence rate ∣λ−∣|\lambda^-|; half-life ln⁡2/∣λ−∣\ln 2 / |\lambda^-|.