[Gretl-users] Re: Gretl-users Digest, Vol 148, Issue 7 (steady state tricks for the lazy)

On Wed, 8 May 2019, Alecos Papadopoulos wrote: I'm referring to the Ramsey model, which IMO ought to be general enough to include the case of a zero discount rate (so that the steady state is the same as under the Golden Rule). In the Solow context, the usual idea of how to get to the maximum-consumption steady state is simply to set the saving (and investment) rate equal to its steady state value: then you're bound to get there, regardless of your starting point. But the Ramsey approach suggests that may not be optimal. Suppose we're approaching SS from below. Perhaps we should save at above the SS rate at first, to get to SS faster? Or the opposite: gradually increase the saving rate to its SS value? Even with a zero discount rate this sort of choice is going to depend on the rate of diminishing returns to consumption (e.g. the parameter in a CRRA utility function, which I'll call sigma.). Dynare is able to show me that the Euler-obeying perfect foresight path can start with saving above or below the steady-state rate depending on the value of sigma. And I can confirm this increases total utility over the transition to SS, relative to the constant saving-rate case, by having gretl compute utility for the latter. Intertemporal utility. Allin