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Department of Economics, Copenhagen Business School Working Paper Series, Department of Economics, Copenhagen Business School

No 15-2005:
A Three-period Samuelson-Diamond Growth

Niels Blomgren-Hansen

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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