Data Facts
1
Growth (long term trend) facts
1. Real output grows at a relatively constant rate (i.e.
if
y
t
= ln(
Y
t
)
,
then
∆
y
t
=
g
y
>
0
).
2. The stock of real capital grows at a relatively constant rate greater than
the growth rate of labor hours (i.e. if
k
t
= ln(
K
t
)
and
h
t
= ln(
H
t
)
, then
∆
k
t
=
g
k
> g
h
=
∆
h
t
). That is, the capital/labor ratio is growing.
3. There is no trend in the number of hours per worker after WWII.
4. The growth rate of real output and capital are approximately equal (i.e.
g
y
=
g
k
). That is, the capital/output ratio is roughly constant.
5. Real pro
fi
tability of capital is roughly constant.
6. The shares of income devoted to capital
³
(
r
+
δ
)
K
Y
´
and labor
¡
wH
Y
¢
are
roughly constant (actually the
fi
rst is a consequence of 4 and 5). This fact
will prove useful in “calibration".
•
Facts (1)(5) characterize an economy experiencing “balanced growth”.
•
If we are willing to assume
Y
t
=
A
t
K
θ
t
H
1
−
θ
t
,
then there is another “fact”:
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 Spring '07
 CORBAE
 Economics, Macroeconomics, Inflation, Kt Ht

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