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

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Unformatted text preview: 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 2 0 ,0 4 0 ,0 6 0 ,0 8 0 ,1 0 ,1 2 0 ,1 4 0 ,1 6 10 20 30 40 50 60 ln Y /L 0 ,2 0 ,4 0 ,6 0 ,8 1 1 ,2 1 ,4 1 0 2 0 3 0 4 0 5 0 6 0 k 0 ,2 0 ,4 0 ,6 0 ,8 1 1 ,2 1 ,4 1 0 2 0 3 0 4 0 5 0 6 0 d ln Y /L 0 ,0 1 0 ,0 2 0 ,0 3 0 ,0 4 0 ,0 5 0 ,0 6 1 0 2 0 3 0 4 0 5 0 6 0 1 Example 2:...
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Solow - Solow model dynamics in 4 steps: Step 1. Find out...

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