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Creator: Sargent, Thomas J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 108 Palabra clave: One-sector growth model, Tobin, Demand schedule, Stochastic growth model, and Q theory Tema: O41 - One, Two, and Multisector Growth Models and E22 - Investment; Capital; Intangible Capital; Capacity
Creator: Chari, V. V., Kehoe, Patrick J., and McGrattan, Ellen R. Series: Joint committee on business and financial analysis Abstract:
This paper proposes a simple method for guiding researchers in developing quantitative models of economic fluctuations. We show that a large class of models, including models with various frictions, are equivalent to a prototype growth model with time varying wedges that, at least on face value, look like time-varying productivity, labor taxes, and capital income taxes. We label the time varying wedges as efficiency wedges, labor wedges, and investment wedges. We use data to measure these wedges and then feed them back into the prototype growth model. We then assess the fraction of fluctuations accounted for by these wedges during the great depressions of the 1930s in the United States, Germany, and Canada. We find that the efficiency and labor wedges in combination account for essentially all of the declines and subsequent recoveries. Investment wedge plays at best a minor role.
Palabra clave: Business cycle, Cycle, Economic fluctuations, Fluctuation, and Growth Tema: O41 - One, Two, and Multisector Growth Models, O47 - Economic growth and aggregate productivity - Measurement of economic growth ; Aggregate productivity ; Cross-country output convergence, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles
Creator: Krusell, Per and Ríos-Rull, José-Víctor Series: Conference on economics and politics Abstract:
Some economic policies and regulations seem to have only one purpose: to prevent technological development and economic growth from occurring. In this paper, we attempt to rationalize such policies as outcomes of voting equilibria. In our environment, some agents will be worse off if the economy grows, since their skills are complementary to resources that can be allocated to growth-stimulating activities. In the absence of arrangements where votes are traded, we show that for some initial skill distributions, the economy may stagnate due to growth-preventing policies. Different initial skill distributions, however, lead to voting outcomes and policies in support of technological development, and to persistent economic growth. In making our argument formally, we use a dynamic model with induced heterogeneity in agents' skills. In their voting decisions, agents compare how they will be affected under each policy alternative, and then vote for the policy that maximizes their welfare.
Tema: O41 - One, Two, and Multisector Growth Models and O31 - Innovation and Invention: Processes and Incentives
Creator: Bajona, Claustre and Kehoe, Timothy Jerome, 1953- Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 377 Abstract:
We contrast the properties of dynamic Heckscher-Ohlin models with overlapping generations with those of models with infinitely lived consumers under both closed and open international capital markets. In both environments, if capital is mobile, factor price equalization occurs after the initial period. If capital is not mobile, the properties of equilibria differ drastically across environments: With infinitely lived consumers, factor prices equalize in any steady state or cycle and, in general, there is positive trade in any steady state or cycle. With overlapping generations, we construct examples with steady states and cycles in which factor prices are not equalized, and any equilibrium that converges to a steady state or a cycle with factor price equalization has no trade after a finite number of periods.
Tema: F11 - Neoclassical Models of Trade, O15 - Economic Development: Human Resources; Human Development; Income Distribution; Migration, F43 - Economic Growth of Open Economies, and O41 - One, Two, and Multisector Growth Models
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.
Tema: F15 - Economic Integration, F43 - Economic Growth of Open Economies, and O41 - One, Two, and Multisector Growth Models
Creator: McGrattan, Ellen R. and Schmitz, James Andrew Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 250 Abstract:
This chapter reviews the literature that tries to explain the disparity and variation of GDP per worker and GDP per capita across countries and across time. There are many potential explanations for the different patterns of development across countries, including differences in luck, raw materials, geography, preferences, and economic policies. We focus on differences in economic policies and ask to what extent can differences in policies across countries account for the observed variability in income levels and their growth rates. We review estimates for a wide range of policy variables. In many cases, the magnitude of the estimates is under debate. Estimates found by running cross-sectional growth regressions are sensitive to which variables are included as explanatory variables. Estimates found using quantitative theory depend in critical ways on values of parameters and measures of factor inputs for which there is little consensus. In this chapter, we review the ongoing debates of the literature and the progress that has been made thus far.
Palabra clave: Endogenous growth theory, Growth accounting, Cross-country income differences, and Growth regressions Tema: O11 - Macroeconomic Analyses of Economic Development, O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence, E62 - Fiscal Policy, E65 - Studies of Particular Policy Episodes, and O41 - One, Two, and Multisector Growth Models
Creator: Azariadis, Costas and Smith, Bruce D. (Bruce David), 1954-2002 Series: Finance, fluctuations, and development Abstract:
We study a variant of the one-sector neoclassical growth model of Diamond in which capital investment must be credit financed, and an adverse selection problem appears in loan markets. The result is that the unfettered operation of credit markets leads to a one-dimensional indeterminacy of equilibrium. Many equilibria display economic fluctuations which do not vanish asymptotically; such equilibria are characterized by transitions between a Walrasian regime in which the adverse selection problem does not matter, and a regime of credit rationing in which it does. Moreover, for some configurations of parameters, all equilibria display such transitions for two reasons. One, the banking system imposes ceilings on credit when the economy expands and floors when it contracts because the quality of public information about the applicant pool of potential borrowers is negatively correlated with the demand for credit. Two, depositors believe that returns on bank deposits will be low (or high): these beliefs lead them to transfer savings out of (into) the banking system and into less (more) productive uses. The associated disintermediation (or its opposite) causes banks to contract (expand) credit. The result is a set of equilibrium interest rates on loans that validate depositors' original beliefs. We investigate the existence of perfect foresight equilibria displaying periodic (possibly asymmetric) cycles that consist of m periods of expansion followed by n periods of contraction, and propose an algorithm that detects all such cycles.
Palabra clave: Equilibrium, Business cycles, Credit markets, and Interest rates Tema: E51 - Monetary policy, central banking, and the supply of money and credit - Money supply ; Credit ; Money multipliers, E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles, O41 - One, Two, and Multisector Growth Models, and E44 - Money and interest rates - Financial markets and the macroeconomy
Creator: Kahn, James A. (James Allan) and Lim, Jong-Soo Series: Conference on economics and politics Abstract:
This paper analyzes the political economy of growth as an issue of intergenerational distribution. The first part of the paper develops a model of endogenous growth via human capital accumulation in an overlapping generations setting. Equilibrium growth is inefficient due to the presence of an intergenerational externality. We characterize the set of Pareto efficient paths for physical and human capital accumulation, and find that there is a continuum of efficient growth rate-interest rate combinations. The preferred combination for an infinitely-lived planner will depend on the social discount rate. Competitive equilibrium with subsidized or mandated human capital accumulation may give rise to a Pareto efficient steady state, though for some parameters efficiency requires some intergenerational redistribution. We then argue that a social planner or government with an infinite horizon is incongruous in an OG model when the agents all have finite horizons. Hence the second part of the paper addresses the question of how a government whose decisionmakers reflect the finite horizons of their constituents would choose policies that affect physical and human capital accumulation. Specifically we assume that each government maximizes a weighted sum of utilities of those currently alive. Each period the government selects a policy that takes into account the effect (through state variables) on subsequent policy decisions (and hence on the welfare of the current young generation). Numerical methods involving polynomial approximations are used to compute equilibria under specific parametric assumptions. Equilibrium growth rates turn out to be substantially below efficient rates.
Palabra clave: Education, Growth, Political economy, Political instability, and Markov equilibrium Tema: D72 - Analysis of collective decision-making - Models of political processes : Rent-seeking, elections, legislatures, and voting behavior, O41 - One, Two, and Multisector Growth Models, and D91 - Intertemporal choice and growth - Intertemporal consumer choice ; Life cycle models and saving
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.
Tema: E25 - Aggregate Factor Income Distribution, E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital, and O41 - One, Two, and Multisector Growth Models