Delay differential neoclassical growth model

This paper develops a continuous-time neoclassical growth model with time delay. Despite of its simple structure, the resulting dynamic system shows emergence of erratic fluctuations in the capital accumulation process when the production function is unimodal and the delay in production is explicitly considered. It complements the seminal paper of Day (1982) in which a discrete-time neoclassical growth model displayed chaotic behavior for some configurations of the propensity to save, the growth rate of labor and the capital depreciation rate. Our analysis has at least two implications. First, nonlinearities and delay matter for a birth of aperiodic fluctuations of national product in the continuous-time model. Second, comparing the effects caused by two different time delays, fixed and continuously distributed time delays, reveals that the continuous-time model with the former can generate complex fluctuations while the one with the latter generates simple fluctuations when the shape parameter of the density function is small and complex fluctuations when large. (C) 2011 Elsevier B.V. All rights reserved.