Economic Research and Perspectives

Economic Research and Perspectives

The Optimal Path of Investment, Consumption and Gross National Production: An Application of Generalized Ramsey Model in Economy of Iran

Authors
Mostafa Karimzadeh 1
Saeid Samadi 2
Khadijeh Nasrollahi 2
Rahim Dallali Isfahani 3
Saeid Samadi 2
1 Assistant Professor, Department of Economics, Ferdowsi University, e-mail:Karimzadehmostafa@yahoo.com
2 Assistant Professor, Department of Economics, Isfahan University
3 Associate Professor, Department of Economics, Isfahan University
Abstract
Ramsey model is one of the most important basic models to study intertemporal resource allocation. This model is derived from microeconomic optimal principle so it has a key role in macroeconomics with micro foundations. Hence, in many economic researches it is considered as a reference theory. Application of this model in economy of Iran will provide an appropriate theorem framework for explaining empirical facts of the Iranian economy and will introduce a new approach to researchers. The main idea of this study is generalizing Ramsey model through including terms of trade and its calibration in the economy of Iran. For this purpose first, the model is explained. Then, the first order condition is derived and mathematical optimal path of variables is solved. Finally, the model is calibrated by GAMS package for economy of Iran in time period (2006-2036). The results indicate that there is a feasible solution for model and the optimal path of variables can be observed. The optimal path of Gross National Production and Consumption are increasing but the optimal path of capital stock and investment is primarily increasing then decreasing. In the final section of this paper a sensitivity analysis is presented. Some scenarios are designed for the important parameters of model like time preferences rate, intertemporal substitution elasticity of consumption, labour growth rate and output elasticity of capital. Sensitivity analysis shows that output elasticity of capital and labour growth rate increased the social welfare and shifted optimal path of variables upward. But time preferences rate and intertemporal substitution elasticity of consumption had inverse effect on social welfare and optimal path of variables.
Keywords
E22
Calibration
F41
Terms of Trade
Generalized Ramsey Model
Time Preferences Rate
Sensitivity Analysis
Economy of Iran JEL Classification: F4
F32
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Economic Research and Perspectives
Volume 12, Issue 4
Winter 2013
Pages 1-25