This paper mainly shows that capital evolution may display saddle-path convergence even under one-sector AK model when uncertainty is present. A growing economy not only necessarily goes through periods of high and low growth but also must face negative growth rate if shock volatility is considered. Besides, we can derive a close-form solution to demonstrate that the relationship between uncertainty (or Arrow &Pratt relative risk index ) and growth is U-shaped as previous studies indicated under usual parameter setting. The intuition behind this paper comes from the fact that substitution and income effect work together to affect capital evolution when facing risk.
關聯:
Proceedings of International Symposium on Business and Management, Vol.6 No.1
