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Delay Solow Model with a Normalized CES Production Function

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  • Matsumoto, Akio
  • Szidarovszky, Ferenc

Abstract

This study analyzes the relationship between the elasticity of substitution and the economic stability/instability. To this end, we adopt a CES production function that consistently involves all its variants and introduce two delays, called a gestation delay and a depreciation delay, into the Solow model. In the case of one delay, we find that the gestation delay is harmless, the depreciation delay has a destabilizing effect, and the two delays having the equal length possesses a stronger stabilizing effect than the destabilizing effect of the depreciation delay. In the case of two different delays, we analytically construct the stability switching curve that divides the parametric region into the stability and instability regions. We also demonstrate that the location of the stability switching curve depends not only on the elasticity of substitution but the baseline values of the CES function and the parametric values of the dynamic equation.

Suggested Citation

  • Matsumoto, Akio & Szidarovszky, Ferenc, 2023. "Delay Solow Model with a Normalized CES Production Function," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 305-323.
    • Handle: RePEc:eee:jeborg:v:213:y:2023:i:c:p:305-323
    DOI: 10.1016/j.jebo.2023.07.019
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    References listed on IDEAS

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