Replacement echoes in the vintage capital growth model

This paper is concerned with a non-standard source of fluctuations, called echo effects, i.e., the ability of an economy to reproduce its own past history. In the 1960s. growth theorists believed that this property could arise in vintage capital models, taking the form of replacement echoes. This line of research was stopped after the publication of Solow et al. [15], who showed that echoes should vanish in a Solow growth model with vintage capital. However, the fundamental reason for this result has nothing to do with vintages; rather, it comes directly from the main assumption in a Solow growth model, i.e., at equilibrium investment is a constant fraction of output and does not depend on any optimal replacement rule. We claim that in a more general Ramsey model replacement echoes do not necessarily vanish and we show this in the case when instantaneous utility is linear. (C) 1997 Academic Press.