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Comparative Dynamics in Aggregate Models of Optimal Capital Accumulation

Quarterly Journal of Economics 1985 100(4), 1235
The hypothesis that capital increases at each time in response to an increase in the discount factor is explored for a class of aggregate models of optimal accumulation. When the optimal program is monotonic, capital is shown to increase with an increase in the discount factor. A counterexample in the case of oscillating programs is discussed. An application of the monotone case is given for an adjustment cost model of the firm.