OSCILLATIONS IN THE WALRASIAN GENERAL EQUILIBRIUM THEORY WITH ENDOGENOUS WEALTH AND HUMAN CAPITAL ACCUMULATION

Abstract

This paper generalizes the dynamic growth model with wealth accumulation and human capital accumulation proposed by Zhang (2013) by making all the parameters as time-dependent parameters. The original model is an extension of the Uzawa-Lucas model to a heterogeneous household economy with multiple ways of human capital accumulation. It synthesizes the basic ideas of the Walrasian general equilibrium theory, Arrow’s learning by producing, Zhang’s learning by consuming (creative learning), the neoclassical growth theory, and the Uzawa-Lucas two-sector model. The behavior of the household is described with an alternative approach to household behavior. The economic system consists of one production sector and one education sector. Households are different in propensities to save, to obtain education and to consume, and in learning abilities. We simulate the model to demonstrate existence of equilibrium points, motion of the dynamic system, and oscillations due to different exogenous shocks.