This preview shows pages 1–9. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document 1
Solow models
Solow model with technological growth
Critical Evaluation
2
models of endogeneous growth
overview
learning by doing model
human capital model
3
Consumption
theory
ricardian equivalence
two period model
4
Investment
two period model
tobin’s q
2/35
Solow model with technological progress
motivation and key aspects
sustained growth of living standards can be explained by technological
progress that is labouraugmenting (
not
capitalaugm.or TFP)
key factors of production:
eﬀective units of labour
A N
, capital
K
formulas
population growth rate
N
0
N
= 1 +
n
growth rate of technology
A
0
A
= 1 +
g
neoclassical production function
Y
=
F
(
K
,
A N
) =
K
α
(
A N
)
1

α
market clearing
Y
=
C
+
I
investment, consumption
I
=
s Y
,
C
= (1

s
)
Y
capital accumulation
K
0
= (1

d
)
K
+
I
3/35
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document formulas in per eﬀectiveworker terms
y
e
=
f
(
k
e
) =
k
α
e
)
k
0
e
=
(1

d
)
ke
1+
n
+
g
+
s f
(
ke
)
1+
n
+
g
i
e
=
s y
e
k
0
e
(1 +
n
+
g
) = (1

d
)
k
e
+
i
e
diminishing MPK implies unique and stable steadystate in
k
e
how to compute steady state:
k
*
e
(1 +
n
+
g
) = (1

d
)
k
*
e
+
s f
(
k
*
e
)
k
*
e
(
n
+
g
+
d
) =
s f
(
k
*
e
)
4/35
implications  long run (steady state)
y
*
e
=
f
(
k
*
e
)
(1) const. output per eﬀective worker
i
*
e
=
s y
*
e
,
c
*
e
= (1

s
)
y
*
e
(2) constant
i
e
and
c
e
x
*
e
=
X
*
AN
=
⇒
X
*
N
=
Ax
*
e
(3) variables per capita grow by
g
%
(4, 5) conditional convergence and goldenrule as before
implications  short run dynamics
by following the same steps as before, we can solve for
(1 +
n
+
g
)
g
ke
=
s
1
k
1

α
e

(
d
+
n
+
g
)
5/35
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document Sample Paper Q2
There is a concern that the increase in the price of oil may slow down
economic growth. Use the Solow model to explain the growth eﬀects of an
increase in oil price.
Answer
: Obviously, there is no oil in the Solow model. Out of the
parameters there are (s, d, z, g) it is least crazy to capture the oil shock as
a decrease in
z
 a negative productivity shock. To do so we don’t need to
complicate things by assuming population or productivity growth so let’s
keep
n
=
g
= 0
In principle, we can talk about short and longrun eﬀects on growth:
Longrun
growth of aggregate output is given only by
n
=
g
= 0.
Therefore there are no longrun implications on the growth rate.
6/35
Shortrun eﬀects
:
Simple Solow model
k
0
= (1

d
)
k
+
i
= (1

d
)
k
+
s z f
(
k
)
d k
*
=
s z f
(
k
*
)
lower
z
generates a period
of negative growth
Solow model with tech. progress
NB that ﬁgure is cast in terms of
k
e
=
K
AN
lower
A
moves
k
e
to a higher point
Slower growth
follows as we converge back to
k
*
e
7/35
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document Critical Evaluation
extremely simple and incredibly useful for modeling growth experience of a
single country (or of equally developed countries).
all modern
This is the end of the preview. Sign up
to
access the rest of the document.
This note was uploaded on 09/12/2010 for the course PHYS 15289 taught by Professor Oreilly during the Spring '09 term at Aberystwyth University.
 Spring '09
 OREILLY

Click to edit the document details