{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Solow

# Solow - Solow model dynamics in 4 steps Step 1 Find out...

This preview shows pages 1–4. Sign up to view the full content.

Solow model dynamics in 4 steps: Step 1. Find out what the shock is. If it is a shock to parameters ( s; n; x; °; ± ) , then k does not jump. If an aggregate variable (K,L,A) jumps then k also jumps. Step 2. Use equation _ k = sf ( k ) ° ( ° + n + x ) k y = f ( k ) Draw the diagram ( sf ( k ) ; ( ° + n + x ) k ), °nd the old and the new steady state, deduct how k evolves between them. Step 3. yA = Y=L ) ln Y=L = ln A + ln y The path of k; y and ln y look the same. Draw a graph for ln A: Step 4. Add graphs for ln y and for ln A to get the graph for GDP per capita. The growth rate is the slope of this graph. The short run is right after the shock. The long run is at time going to in°nity. Example 1: n down, d down or s up. n 0 0,02 0,04 0,06 0,08 0,1 0,12 0,14 0,16 0 10 20 30 40 50 60 lnY/L 0 0,2 0,4 0,6 0,8 1 1,2 1,4 0 10 20 30 40 50 60 k 0 0,2 0,4 0,6 0,8 1 1,2 1,4 0 10 20 30 40 50 60 dlnY/L 0 0,01 0,02 0,03 0,04 0,05 0,06 0 10 20 30 40 50 60 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Example 2: n up, d up or s down. d 0 0,05 0,1 0,15 0,2 0,25 0 10 20 30 40 50 60 lnY/L 0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1 0 10 20 30 40 50 60 k 0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0 10 20 30 40 50 60 dlnY/L -0,015 -0,01 -0,005 0 0,005 0,01 0,015 0,02 0,025 0 10 20 30 40 50 60 Example 3: x up. x 0 0,01 0,02 0,03 0,04 0,05 0,06 0,07 0,08 0,09 0 10 20 30 40 50 60 lnY/L 0 0,2 0,4 0,6 0,8 1 1,2 1,4 1,6 0 5 10 15 20 25 30 k 0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0 10 20 30 40 50 60 dlnY/L 0 0,01 0,02 0,03 0,04 0,05 0,06 0,07 0,08 0,09 0 5 10 15 20 25 30 2
Example 4: x down. x 0 0,01 0,02 0,03 0,04

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 4

Solow - Solow model dynamics in 4 steps Step 1 Find out...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online