Creator: Coleman, Wilbur John. Series: Nonlinear rational expectations modeling group Abstract:
A cash-in-advance constraint on consumption is incorporated into a standard model of consumption and capital accumulation. Monetary policy consists of lump-sum cash transfers. Methods are developed for establishing the existence and uniqueness of an equilibrium. and for explicitly constructing this equilibrium. The model economy's dependence on monetary policy is explored.
Also published in the International Finance Discussion Paper series, number 323.
Keyword: Equilibrium, Planned Growth economy, and Monetary Growth economy Subject (JEL): E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation, O41 - One, Two, and Multisector Growth Models, O42 - Economic growth and aggregate productivity - Monetary growth models, and E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy
Creator: Rivera-Batiz, Luis. and Romer, Paul Michael, 1955- Series: Modeling North American economic integration Abstract:
In a world with two similar, developed economies, economic integration can cause a permanent increase in the worldwide rate of growth. Starting from a position of isolations, closer integration can be achieved by increasing trade in goods or by increasing flows of ideas. We consider two models with different specifications of the research and development sector that is the source of growth. Either form of integration can increase the long-run rate of growth if it encourages the worldwide exploitation of increasing returns to scale in the research and development sector.
Subject (JEL): F43 - Economic Growth of Open Economies, O41 - One, Two, and Multisector Growth Models, and F15 - Economic Integration
Creator: Caselli, Francesco, 1966- and Coleman, Wilbur John. Series: Productivity and the industrial revolution Abstract:
The process by which per capita income in the South converged to northern levels is intimately related to the structural transformation of the U.S. economy. We find that empirically most of the southern gains are attributable to the nation-wide convergence of agricultural wages to non-agricultural wages, and the faster rate of transition of the Southern labor force from agricultural to non-agricultural jobs. Similar results describe the Mid-West's catch up to the North-East (but not the relative experience of the West). To explain these observations, we construct a model in which the South (Mid-West) has a comparative advantage in producing unskilled-labor intensive agricultural goods. Thus, it starts with a disproportionate share of the unskilled labor force and lower per capita incomes. Over time, declining education/training costs induce an increasing proportion of the labor force to move out of the (unskilled) agricultural sector and into the (skilled) non-agricultural sector. The decline in the agricultural labor force leads to an increase in relative agricultural wages. Both effects benefit the South (Mid-West) disproportionately since it has more agricultural workers. The model successfully matches the quantitative features of the U.S. structural transformation and regional convergence, as well as several other stylized facts on U.S. economic growth in the last century. The model does not rely on frictions on factor mobility, since in our empirical work we find this channel to be less important than the compositional effects the model emphasizes.
Keyword: Skill acquisition, Regional economies, Agricultural and non-agricultural workers, Structural transformation, and Regional convergence Subject (JEL): O14 - Economic development - Industrialization ; Manufacturing and service industries ; Choice of technology, O41 - One, Two, and Multisector Growth Models, and O18 - Economic development - Regional, urban, and rural analyses
Creator: Laitner, John. Series: Productivity and the industrial revolution Abstract:
This paper presents a model in which a country's average propensity to save tends to rise endogenously over time. The paper uses a two-sector neoclassical framework to model the transition from agriculture to manufacturing which typically accompanies economic development. Key assumptions are that only the agricultural sector uses land and a simple version of Engel's law. When a country's income per capita is low, agricultural consumption is important; consequently, land is valuable and capital gains on it may account for most wealth accumulation, making the NIPA APS appear low. If exogenous technological progress raises incomes over time, Engel's law shifts demand to manufactured goods. Then land's importance in portfolios relative to reproducible capital diminishes and the measured average propensity to save can rise.
Keyword: Manufacturing, Growth, and Economic growth Subject (JEL): O14 - Economic development - Industrialization ; Manufacturing and service industries ; Choice of technology and O41 - One, Two, and Multisector Growth Models
Creator: Bertola, Giuseppe. Series: Economic growth and development Abstract:
This paper proposes a model of diversifiable uncertainty, irreversible investment decisions, and endogenous growth. The detailed microeconomic structure of the model makes it possible to study the. general equilibrium effects of obstacles to labor mobility, due to institutional as well as technological features of the economy. Labor mobility costs reduce private returns to investment, and the resulting slower rate of endogenous growth unambiguously lowers a representative individual's welfare. Turnover costs can have positive effects on full employment equilibrium wages when all external effects are disregarded: this may help explain why policy and institutions often tend to decrease labor mobility in reality, rather than to enhance it. Lower flexibility, however, reduces the growth rate of wages in endogenous growth equilibrium, with negative welfare effects even for agents who own only labor.
Subject (JEL): E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital, O41 - One, Two, and Multisector Growth Models, and E25 - Aggregate Factor Income Distribution
Creator: Segerstrom, Paul Stephen, 1957- Series: Economic growth and development Abstract:
This paper develops a dynamic general equilibrium model of economic growth. The model has a steady state equilibrium in which some firms devote resources to discovering qualitatively improved products and other firms devote resources to copying these products. Rates of both innovation and imitation are endogenously determined based on the outcomes of R&D races between firms. Innovation subsidies are shown to unambiguously promote economic growth. Welfare is only enhanced however if the steady state intensity of innovative effort exceeds a critical level.
Subject (JEL): O41 - One, Two, and Multisector Growth Models and O31 - Technological change ; Research and development - Innovation and invention : Processes and incentives
Creator: Parente, Stephen L. and Prescott, Edward C. Series: Economic growth and development Abstract:
Technology change is modeled as the result of decisions of individuals and groups of individuals to adopt more advanced technologies. The structure is calibrated to the U.S. and postwar Japan growth experiences. Using this calibrated structure we explore how large the disparity in the effective tax rates on the returns to adopting technologies must be to account for the huge observed disparity in per capita income across countries. We find that this disparity is not implausibly large.
Subject (JEL): O33 - Technological change ; Research and development - Technological change : Choices and consequences ; Diffusion processes and O41 - One, Two, and Multisector Growth Models
Creator: Benhabib, Jess, 1948- and Rustichini, Aldo. Series: Economic growth and development Abstract:
In this paper we study the relationship between wealth, income distribution and growth in a game-theoretic context in which property rights are not completely enforcable. We consider equilibrium paths of accumulation which yield players utilities that are at least as high as those that they could obtain by appropriating higher consumption at the present and suffering retaliation later on. We focus on those subgame perfect equilibria which are constrained Pareto-efficient (second best). In this set of equilibria we study how the level of wealth affects growth. In particular we consider cases which produce classical traps (with standard concave technologies): growth may not be possible from low levels of wealth because of incentive constraints while policies (sometimes even first-best policies) that lead to growth are sustainable as equilibria from high levels of wealth. We also study cases which we classify as the "Mancur Olson" type: first best policies are used at low levels of wealth along these constrained Pareto efficient equilibria, but first best policies are not sustainable at higher levels of wealth where growth slows down. We also consider the unequal weighting of players to ace the subgame perfect equiliria on the constrained Pareto frontier. We explore the relation between sustainable growth rates and the level of inequality in the distribution of income.
Keyword: Economic growth, Conflict, and Equilibria Subject (JEL): O41 - One, Two, and Multisector Growth Models and D74 - Conflict; Conflict Resolution; Alliances