%PDF-1.5 %���� /Matrix [1 0 0 1 0 0] �-+K�'8�����&�e�$?Q�ë(0�6�,����:?=�ERѳc This has characterized many market economies over the last two centuries. Announcements •Sorry if you tried to come to office hours but the door to 2232 Piedmont was locked •You can always email me if you’re locked out, or try knocking /Filter /FlateDecode endobj To see why Figure 1 poses a problem for the conventional analysis, consider a very simple version of the neoclassical model. << /S /GoTo /D (Outline0.6) >> stream according to the neoclassical growth model, as Fig. /R 22050 /Matrix [1 0 0 1 0 0] 13 0 obj 0 /XObject << /Fm2 49 0 R /Fm3 50 0 R /Fm1 48 0 R >> 24 0 obj /Type /XObject endobj All of the approaches are based on three central assumptions: 1. 59 0 obj << /Filter /FlateDecode >> endobj /Filter /FlateDecode /Contents 53 0 R 8 0 obj << /FormType 1 endobj �����u_���.lć�k�|3`����%��r�U���^_~^m�����E�� ��ĊB�n$����[2�ā"7> 50 0 obj << models of growth that drop the two central assumptions of the neoclassical model: that technological change is exogenous and that the same technological opportunities are available in all countries of the world. Thus, the neoclassical growth model led to steady-state analysis, which is among the most important constructs in public finance. In the Ramsey model, agents (or the dictator) choose consumption and investment optimally so as to maximize their individual utility (or social welfare). I identical agents I Time is discrete and index by t = 0,1,2,...,∞. Certainly, we shouldn’t expect this /D [46 0 R /XYZ 351.928 0 null] Note that we mean the neoclassical growth model in its modern meaning of incorporating fully optimizing saving behavior. h�b```f``rb`��� �� >> endobj /Filter /FlateDecode An individual’s purpose is to maximize utility, as a company’s purpose is to maximize profits. Notation differs between continuous time and discrete time models, but almost any macro model can be written in either - the difference is usually a matter of taste and convenience. 3. �,����M��)�Nu��!8���56=�/�&쟐[��`uk�Ɯ���5 �L�}&e�KZ����e�r�����*)ry�0�y}F�"'�嗯5���X�j5��ԪpQ���Y�����f���r��++�&�_U=�8ί{l~�Ep~�3���!NfT�9[$#��7����U`�% u0Ht �,@�������i�I�@,Ic�gؤnt�����C[߁Ue����vYש(�My�sߴk��17X��h��} �<7�� ���? growth in income per person is tied to growth in the total stock of ideas (i.e., an aggregate) not to growth in ideas per person. With the fundamental assumptions above, various studies and approaches have been dev… /ProcSet [ /PDF ] 2 Solve an approximated version of the model where we linearize the equations. /Shading << /Sh << /ShadingType 2 /ColorSpace /DeviceRGB /Domain [0.0 8.00009] /Coords [0 0.0 0 8.00009] /Function << /FunctionType 3 /Domain [0.0 8.00009] /Functions [ << /FunctionType 2 /Domain [0.0 8.00009] /C0 [1 1 1] /C1 [0.5 0.5 0.5] /N 1 >> << /FunctionType 2 /Domain [0.0 8.00009] /C0 [0.5 0.5 0.5] /C1 [0.5 0.5 0.5] /N 1 >> ] /Bounds [ 4.00005] /Encode [0 1 0 1] >> /Extend [false false] >> >> endobj Section 4 presents the shortcomings of Uzawa theorem and its endstream R�t7�L��{rot�S �K��ZPB)5J9�b� iJe!p�\�R����ҍr=5���B����M endobj (Competitive Equilibrium) 2 CHAPTER 1. In the Ramsey model, agents (and the planner) choose consumption and investment optimally so as to maximize their utility (welfare). endobj The model was developed by Robert Solow in the 1960s and it is sometimes called the Solow growth model or the exogenous growth model. << /S /GoTo /D (Outline0.4) >> /D [46 0 R /XYZ 10.906 263.494 null] endobj 44 0 obj >> endobj Notes on Neoclassical Growth Model Eric Sims University of Notre Dame Spring 2017 1 Basic Neoclassical Growth Model The economy is populated by a large number of in nitely lived agents. /Annots [ 51 0 R ] No Importance to the Role of Govt. /BBox [0 0 5669.291 8] Section 6 presents extended neoclassical models with –scal policies with a focus on the U.S. economy during World War II. c�+��҂0��d��:��)��0O��3[\ἂ��^�!,㍃݅X��(�� a���"ǣ�(Gg��{����5�I�V�/��а���|�����o��˓��,��������?�]V���Ɋ���EU_�+�|PNA�����ž8��W�B�W�8o�[�^��S�A�����R\���Л�R�E%hBQ���l ����P\�+���|����o��Z��~2�F����P܈�գJ���DL�i5VW sS�~RM�q_L��3�U|�7U�bHR��/f�b&f�M��U�`�Y}'fC�i#����D����ŭ�&��;q/�W����~������������˽����+��*�`���/�wX+0֬eh8.o*����ӻ��?�^IqԔ�����$�8i��3Ѝ8��T4ם֓f����Q���]4=�E�z>�h��)�z�ZR��k����Z۳��uO���w�8%��ܬ[Ex�%ז21�8�4}�����6�د^��jn�)��т��'>��S�(�*�Ã�h{��W=����dY-��=j��T/�Ȫp]i�0I�QL��X!�^> �L6�B�^9���{XOg ��+&JQm�U9�F��^4h�h�ji��c�o3���� We can set up a growth model, with . >> endobj /A << /S /GoTo /D (Navigation40) >> 60 0 obj << establish this aspect of neoclassical orthodoxy, which was weakened and somewhat obscured by the Solow-Swan growth model. �籗$�FT��i!�%R��Fg�r����B^�h��]�Ł#��k���m���3[ص��:8. A one percent increase in the capital stock increases output by 0.36 percent. They criticize not the model but only Barro's application of it. /Font << /F21 55 0 R >> endobj demonstrates a neoclassical growth model with adjustment costs. /Type /XObject endobj (Solving the Model) 29 0 obj Section 5 presents extended neoclassical models to study Depressions. >> (i.e., 2% annual growth) ... Steinsson (UC Berkeley) Neoclassical Labor Supply 10/45. /Type /Annot >> endobj /Matrix [1 0 0 1 0 0] The adaptation of the system to an endobj endobj 1 endobj << /S /GoTo /D (Outline0.7) >> (Steady State) The rate of population growth n =. Recursive form: P 0 = 39 P n = P n-1 + 2.5 Explicit form: P n = 39 + 2.5 n So at 6 years old, we would expect him to be P 2 = 39 + 2.5(2) = 44 inches tall Any mathematical model will break down eventually. 37 0 obj N�B8�`t In that article, you can find the essentials of the basic neoclassical model of economic growth. @� �pW /ProcSet [ /PDF /Text ] >> endobj endstream (System of Differential Equations) 3.1 The Social Planner • In this section, we start the analysis of the neoclassical growth model by considering the optimal plan /FormType 1 1 Harrod-Domar Growth Model 2 Solow Neoclassical Growth Theory Later, we will discuss endogenous growth theory. ��r��� converge toward the American model. x���P(�� �� endstream /Resources 60 0 R In the transition to the new steady state, the rate of growth of output per worker accelerates. Limitations of Solow’s Neoclassical Growth Model: 1. << /S /GoTo /D (Outline0.3) >> (Optimal Growth) capital coefficient. stream /Subtype /Form 12 s hows, the impact of an i ncrease a saving rate leads to higher output, consumption and capital per worker in the long-term, which These agents consume, save in physical capital, and These agents consume, save in physical capital, and hޤY�RI~�}�����+b�c`������G��3B��Ɔy�ɣ$uK�dO$�UYg^_ʹB��B�C�"�x�0�PF�(e�˫B%�х���)���B{�R�:��N ���(������� 180 0 obj <>stream The neo-classical growth model should not be confused with the neoclassical synthesis, which we will study in chapter 10. /Filter /FlateDecode 9���f�ZL.ߊřh�E!Q��7|���#K23����Mo��'��ܠ��N�ۻ�:+*֙��I��穧�Y�!؁��D��q�=\jks�"�x��6�^�qi�{96��枠j�Ĉ)3�sw��~( H�;O���v��"t��X�j�}?u[�vG p�sN�����Z��fSZ���Oj�g�^R#g X�%u;�I�}����I���l`���؝f�PB� ��B�7S&�R�j�U���j�SM�*��J�ɌT��[�m�_.�C���{:B��yພ��Bn�W���Rd�.�8��ۇ����\Z�8_�?�/�\ Y� �.�0r=$y9 ����� (Environment) /Type /XObject stream 1.1.4 Growth accounting How much of a country’s growth can be explained by: • Labor force growth • Capital accumulation More autoworkers produce more cars. (Introduction) 12. Knowledge or Education is the Missing Factor: In the above growth accounting equation one factor, namely, knowledge or education, is missing which has been stressed among others by Nobel Laureate Prof. Amartya Sen as an important factor contributing to economic growth. 45 0 obj 48 0 obj << 3 Use the computer to approximate numerically the solution. /Resources 52 0 R progress. The neoclassical growth model does not have a closed-form solution. endstream endobj 135 0 obj <> endobj 136 0 obj <> endobj 137 0 obj <>stream /ProcSet [ /PDF ] Initially the capital/labor ratio k = K / L = 4. 5�[&-�7��J,�#-���5OZ�D�4g�g)���WٲX�fv model, to show how it admits qualitative behavior generally absent from the original model. %PDF-1.4 ��Q��U�����e�-�kj����*�Z�Zm��c�'V��L�������A����U4Cq�(Ir����'2Dvx�X ���@�������s����D䬰�?��K�c(�C�>�@���i��i�#� [fmL��O�r��P�,m�Z��"����X�^������Z㓝h��0�Ь�÷Y�&[�����$ =���X+E�{_���i9l����[s�s�))rhI��+���2�����G=�]f�Q���#$�l�2G��JO|���*�9��G�xA�0S Instead I suppose that the single compositc commodity is produced by labor and capital under the standard neoclassical conditions. other words, Solow’s model and the data together imply that a one percent growth in the labor force leads to a 0.64 percent increase in output. 32 0 obj endobj 28 0 obj /Length 15 /ProcSet [ /PDF ] This note presents the neoclassical growth model in discrete time. endstream xڽVMs�6��W�Δ0�A �&�3��6�h�C�M�~$$�����4%S�jO{ ���{���mo�⽞AϠ�3q �F$ל2���n�~��_����O��:4�Ï���#���WϏpڥ�'�7��[��JP�� ��0*�U�O����ǫ���%gABS�U�� �T1p�(K��:�D~#�IF��!�� ���a�Y���ks�7Ά�v%�F0�����rbK����Y�cz�e}�GmN� �&�t�_;| @��1�SC=}���.͎t2I�T��ihˀ��q|�=E�Zr��. 134 0 obj <> endobj Section 3 specifies the differences between steady-state growth and balanced growth based on existing literatures, and provides the conditions of their realization in the neoclassical growth model. 46 0 obj << audience that, “If you have been interested in growth theory for a while, you probably know that Trevor Swan – who was a splendid macroeconomist – also published a paper on growth theory in 1956 (Swan, 1956). 21 0 obj The Solow Growth Model (and a look ahead) 2.1 Centralized Dictatorial Allocations • In this section, we start the analysis of the Solow model by pretending that there is a dictator, or social planner, that chooses the static and intertemporal allocation of resources and dictates that allocations to the households of the economy We will later On a more tangible level these explanations are; growth in international trade, cross-border Model I Neoclassical model is widely used in growth, business cycles and asset pricing theory. /BBox [0 0 16 16] The Neoclassical Growth Theory is an economic model of growth that outlines how a steady economic growth rate results when three economic forces come into play: labor, capital, and technology. The chapter concludes with brief mention of some continuing research questions within the framework of the simple model. The neoclassical growth theory of Solow (1956) and Swan (1956) assumes the rate of technological progress to be determined by a scientific process that is separate from, and independent of, economic forces. >> 20 0 obj >> 61 0 obj << >> endobj In a Solow model, this cannot sustain per capita growth because 40 0 obj endobj 3 In an important article by Chatterjee (1994), reiterated later by Caselli and Ventura (2000), it is shown that any initial distribution of wealth is essentially self-perpetuating. << /S /GoTo /D (Outline0.5) >> /Length 1107 Comparative Statics: Change in the Savings Rate Recall: in the steady state: sf k∗ n g k∗ The savings rate, s, is a key parameter of the Solow model.An increase in s implies higher actual investment; k grows until it reaches its new (higher) steady-state value. 25 0 obj /Length 15 Neoclassical growth theory is an economic theory that outlines how a steady economic growth rate results from a combination of three driving forces—labor, capital, and technology. /Parent 58 0 R These agents are identical, and so we can e ectively treat them as one. The neoclassical growth theory has been successfully used to explain increase in per capita output and standard of living in the long term as a result technological progress and capital accumulation. �g|0� �!v����������5��6YW��^�t�k~�p��� :�� 12 0 obj /Rect [153.8 1.66 209.029 7.802] endstream The Solow Growth Model 2/7/20 9:13 AM econ c175 1 Economic Demography Demog/Econ c175 Prof. Ryan Edwards Spring 2020 2/6/2020. /Length 1075 Conclusion: Key Results of Solow Neoclassical Model: Let us sum up the various key results of Solow’s neoclassical growth model: 1. /Type /Page The main explanation for emerging of convergence in world economics according to Hague and Harrop (2007:150) is globalization. 154 0 obj <>/Filter/FlateDecode/ID[<18898AA8AF7CB34AF99141867C906EDC><96C0ED4E5F3BEA43848262690756E866>]/Index[134 47]/Info 133 0 R/Length 104/Prev 293608/Root 135 0 R/Size 181/Type/XRef/W[1 3 1]>>stream The neoclassical growth theory intends to explain the continuing rise in per capita income. In the Solow model, agents in the economy (and the planner) follow a simplistic linear rule for consumption and investment. >> endobj >> endobj x� /Subtype /Form 7 40 50 60 70 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010 (a) Weekly U.S. hours worked In the neoclassical growth model, 1 Robert Solow was awarded the Nobel Prize for Economics in 1987 for his contributions to the theory and measurement of economic growth. endobj << /S /GoTo /D (Outline0.5.2.19) >> 54 0 obj << xڵW[o[7~��У0�"u��a���a�C;['A�^������7n���#���O$��0�da��@=PO3F؀:Y/0�b�׋�=���u��ߖa�*����W�Ϭ�b?�����d|OԳ n1X��W7� �vE���t��c��c����nw��xV�����l��L�11�{AB'�H��_���iC^(�F܈�h endobj : The neo-classical could not recognise the important role which … 33 0 obj >> /Shading << /Sh << /ShadingType 3 /ColorSpace /DeviceRGB /Domain [0 1] /Coords [4.00005 4.00005 0.0 4.00005 4.00005 4.00005] /Function << /FunctionType 2 /Domain [0 1] /C0 [0.5 0.5 0.5] /C1 [1 1 1] /N 1 >> /Extend [true false] >> >> These agents are identical, and so we can e ectively treat them as one. We can do three things: 1 Use a phase diagram. /FormType 1 Prof. Paczkowski (Rutgers University) Lecture 4 Modern Growth Theories Spring Semester, 2009 5 / 116 stream /Resources 61 0 R I 3 goods are traded in each t: labor services h t capital services k t a final good y t, either consumed or invested. The neoclassical growth model developed in the 1950s by Solow (1956) and Swan is the starting point for almost all analyses of growth and for any attempt to understand stream Notes on Neoclassical Growth Model Eric Sims University of Notre Dame Spring 2015 1 Basic Neoclassical Growth Model The economy is populated by a large number of in nitely lived agents. << /S /GoTo /D (Outline0.1) >> There are many branches that use different approaches under neoclassical economics. /Length 8 << /S /GoTo /D (Outline0.2) >> He points out that the main problem with that is the “reduced role assigned to the preferences of the community between saving and consumption”(ibid.) The simplest and most popular version of the Neoclassical Growth Model is the Solow-Swan Growth ModelSolow Growth ModelThe Solow Growth Model is an exogenous model of economic growth that analyzes changes in the level of output in an economy over time as a result of changes in the populatio… %���� 9 0 obj Gross saving is sY, with s =. x���P(�� �� Barro's claim is that the tax cut will yield an annual boost of about 0.3 percent to the growth rate, cumulating over ten years to a gain of 2.8 percent in per capita GDP.1 The debate is rooted in the neoclassical growth model, which Barro advocates and Furman and Summers accept. 52 0 obj << /Trans << /S /R >> 41 0 obj 17 0 obj endobj %%EOF /Resources 59 0 R NEOCLASSICAL GROWTH THEORY An aside: in Romer, most of the models are in continuous time, while I will generally use discrete time. h�bbd```b``��� �q?��2��" ��1��� �L R�9�dԾb+���?�I}0yL���'`�6�< "�8���ze&���`{�����@� d�c 57 0 obj << endobj endobj /Border[0 0 0]/H/N/C[.5 .5 .5] sumption and investment. n = 0 corresponding to 4 years old. /Subtype /Link 03. << /S /GoTo /D (Outline0.5.1.18) >> 4 presents one, two, and three sector simple neoclassical model analyses of the post-Korean War U.S. economy. x���P(�� �� 2. It is very easy to get growth in an aggregate in any model, even in a Solow model, because of population growth. The deterministic neoclassical growth model says very little about income and wealth inequality. (Transitional Dynamics) endobj >> endobj /MediaBox [0 0 362.835 272.126] /Filter /FlateDecode The bulk of this paper is devoted to a model of long-run growth which accepts all the Harrod-Domar assumptions except that of fixed proportions. 67 0 obj << Jesœs FernÆndez-Villaverde (PENN) Neoclassical Growth February 12, 2016 19 / 40 36 0 obj /Subtype /Form endobj (Savings Rate) 49 0 obj << 39�0�� 51 0 obj << /Shading << /Sh << /ShadingType 3 /ColorSpace /DeviceRGB /Domain [0.0 8.00009] /Coords [8.00009 8.00009 0.0 8.00009 8.00009 8.00009] /Function << /FunctionType 3 /Domain [0.0 8.00009] /Functions [ << /FunctionType 2 /Domain [0.0 8.00009] /C0 [0.5 0.5 0.5] /C1 [0.5 0.5 0.5] /N 1 >> << /FunctionType 2 /Domain [0.0 8.00009] /C0 [0.5 0.5 0.5] /C1 [1 1 1] /N 1 >> ] /Bounds [ 4.00005] /Encode [0 1 0 1] >> /Extend [true false] >> >> 53 0 obj << 16 0 obj together with the reliance on exogenous factors. stream Besides that, though, steady-state analysis is the theory underlying much of the development literature. 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