A Dynamic General Equilibrium Model Satisfying Golden Rule in Neoclassical Growth Theory

Abstract

This paper constructs a model which is more close to the reality to describe individual saving behavior accurately and explain the long-term growth of economy. The model constructed in this paper is the improvement and innovation of neoclassical growth models including Solow model, RCK model and OLG model. Starting from the micro decision making of individuals and firms, there exists balanced growth path (BGP) and capital stock in steady state satisfies the golden rule in general equilibrium. Total saving rate equals the elasticity of output with respect to capital. The long-term economic growth depends on exogenous technological progress.