Working Paper: NBER ID: w2097
Authors: Andrew B. Abel; N. Gregory Mankiw; Lawrence H. Summers; Richard J. Zeckhauser
Abstract: The issue of dynamic efficiency is central to analyses of capital accumulation and economic growth. Yet the question of what operating characteristics of an economy subject to productivity shocks should be examined to determine whether or not it is efficient has not been resolved. This paper develops criterion based on observables for determining whether or not an economy is dynamically efficient. The criterion involves a comparison of the cash flows generated by capital with the volume of investment. Its application to the United States economy and the economies of other major OECD nations suggests that they are dynamically efficient.
Keywords: Dynamic Efficiency; Capital Accumulation; Economic Growth
JEL Codes: E22; E32; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Cash flows generated by capital (D25) | Volume of investment (G31) |
| Cash flows generated by capital (D25) | Dynamic efficiency (C69) |
| Volume of investment (G31) | Dynamic efficiency (C69) |
| Safe real interest rate (E43) | Growth rate of the economy (O49) |
| Asset returns (G19) | Economic growth (O49) |
| Capital sector contribution to consumption (E20) | Dynamic efficiency (C69) |