Working Paper Series, Department of Economics, Copenhagen Business School
A Three-period Samuelson-Diamond Growth
Abstract: Samuelson (1958) analyses a three-period model, whereas
Diamod (1965) considers a two-period model. This difference poses the
question whether the insights derived by analysing the simple two-period
model carry over in the more complicated three-period case. They do. The
Samuelson model (no productive capital) has only one positive solution (r =
n); however, this root is unstable. The Diamond model (no nonproductive
abode of purchasing power) has also only one positive solution; the root is
stable but inefficient. In a model with both productive capital and a
non-productive abode of purchasing power, the inefficient Diamond solution
becomes unstable and the socially optimal solution becomes stable.
Keywords: None; (follow links to similar papers)
JEL-Codes: H00; (follow links to similar papers)
10 pages, November 13, 2005
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