On the solution of the growth model with investment-specific technological change

Abstract

Recent work by Greenwood et al . (1997, 2000) and Fisher (2003) has emphasized the importance of investment-specific technological change as a main driving force behind long-run growth and the business cycle. This article shows how the growth model with investment-specific technological change has a closed-form solution if capital fully depreciates. This solution furthers our understanding of the model and it constitutes a useful benchmark to check the accuracy of numerical procedures to solve dynamic macroeconomic models in cases with several state variables.

Acknowledgements

Any views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System.