The long-term sucCESs of the neoclassical growth model

Rainer Klump · Peter McAdam

54 citations0/0 files storedOxford Review of Economic Policy

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Economic Growth and Productivity Monetary Policy and Economic Impact Economic Theory and Policy

Abstract

In this paper, we seek to re-establish the link between the constant elasticity of substitution (CES) production function and neoclassical Solow growth theory. We do so in three dimensions. First, we review the increasing importance of the CES technology in modern dynamic macroeconomics, in expanding not only theory but also in addressing important policy questions. Second, we aue that the importance of the CES function in growth theory is intimately linked to ‘normalization’. Finally, we examine the data congruence between CES functions and recent growth patterns in the USA and the euro-area economies, where we apply a supply-side system incorporating a CES function with factor-augmenting and time-varying technical progress.

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References

1956A Contribution to the Theory of Economic Growth 2003An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area 1961Capital-Labor Substitution and Economic Efficiency 2002Getting Income Shares Right 2001Directed Technical Change 2004An area-wide model for the euro area 2000Labor- and Capital- Augmenting Technical Change 2003An Area Wide Model (Awm) for the Euro Area

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