Barro Gordon Model Lecture Notes
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Macroeconomics II: Behavioural Macro Summer 2017
Johannes-Gutenberg University Mainz Bachelor of Science in Wirtschaftswissenschaften Macroeconomics II: Behavioural Macro Summer 2017 Klaus Wälde (lecture) and Jean Roch Donsimoni (tutorials) www.macro.economics.uni-mainz.de February 22, 2017 Part III How behavioural macro could look like 10 The plan We take three typical macroeconomic fields • — business cycle analysis — unemployment and — growth We get to know standard models that allow us to understand why there are • — business cycles — unemployment and — growth 164 We then replace our well-known but far-off-track homo oeconomicus by more emotional • counterparts We see how predictions in emotional (or behavioural) macro models differ from standard • predictions: what can we now understand that we did not understand earlier? Is this prediction in any sense meaningful i.e. can we empirically distinguish between the • extended version and the original one? (though one) 165 11 Unemployment and time inconsistency 11.1 Models of unemployment Macro I told us that we can distinguish between Models of labour supply (“voluntary unemployment”) • Traditional views of unemployment based on static models • Modern models of unemployment looking at the dynamics of a labour market (search and • matching models) 166 11.1.1 A reminder of voluntary unemployment ... understood as a labour supply decision The setup • — Consider an individual that values consumption c and leisure l and is described by 1/θ u (c, l) = c + (1 ) l , < 1, 0 < < 1 — Real budget constraint (wage expressed in units of consumption -
Chretien Consensus
End of the CHRÉTIEN CONSENSUS? Jason Clemens Milagros Palacios Matthew Lau Niels Veldhuis Copyright ©2017 by the Fraser Institute. All rights reserved. No part of this book may be reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles and reviews. The authors of this publication have worked independently and opinions expressed by them are, therefore, their own, and do not necessarily reflect the opinions of the Fraser Institute or its supporters, Directors, or staff. This publication in no way implies that the Fraser Institute, its Directors, or staff are in favour of, or oppose the passage of, any bill; or that they support or oppose any particular political party or candidate. Date of issue: March 2017 Printed and bound in Canada Library and Archives Canada Cataloguing in Publication Data End of the Chrétien Consensus? / Jason Clemens, Matthew Lau, Milagros Palacios, and Niels Veldhuis Includes bibliographical references. ISBN 978-0-88975-437-9 Contents Introduction 1 Saskatchewan’s ‘Socialist’ NDP Begins the Journey to the Chrétien Consensus 3 Alberta Extends and Deepens the Chrétien Consensus 21 Prime Minister Chrétien Introduces the Chrétien Consensus to Ottawa 32 Myths of the Chrétien Consensus 45 Ontario and Alberta Move Away from the Chrétien Consensus 54 A New Liberal Government in Ottawa Rejects the Chrétien Consensus 66 Conclusions and Recommendations 77 Endnotes 79 www.fraserinstitute.org d Fraser Institute d i ii d Fraser Institute d www.fraserinstitute.org Executive Summary TheChrétien Consensus was an implicit agreement that transcended political party and geography regarding the soundness of balanced budgets, declining government debt, smaller and smarter government spending, and competi- tive taxes that emerged in the early 1990s and lasted through to roughly the mid-2000s. -
5 the AK Model
Economic Growth Models: A Primer /Student's Guide, Miguel Lebre de Freitas 5 The AK model “…a level effect can appear as a growth effect for long periods of time, since adjustments in real economies may take place over decades”. [Sachs and Warner]. Learning Goals: Understand why getting rid of diminishing returns one can obtain unceasing growth via factor accumulation. Distinguish the case with endogenous savings. Review different models were simple factor accumulation can generate endogenous growth. Acknowledge the empirical challenges raised by the abandonment of diminishing returns. 5.1 Introduction Along the previous chapters, we learned that, under diminishing returns, factor accumulation cannot, by itself, explain the tendency for per capita income to grow over time. For this reason, a sustained growth of per capita income can only be achieved in the neoclassical model by postulating an exogenous rate of technological progress. In this chapter it is shown that, by getting rid of diminishing returns on capital accumulation, one can obtain continuous growth of per capita income without the need to postulate an exogenous rate of technological progress. This result is shown in terms of the so- called AK model. The AK model differs critically from the Solow model in that it relies on a production function that is linear in the stock of capital. In this model, per capita income grows continuously in the equilibrium, without any tendency to stabilize. In that model, a rise in the saving rate produces a permanent increase in the growth rate of per capita income. This contrasts with the Solow model, where a rise in the saving rate only delivers only a “level effect”. -
Prof Robert Barro
Guest Lecturer Robert Barro MiEMacroeconomic EfffftfGtects from Government Purchases and Taxes Robert J. Barro is Paul M. Warburg Professor of Economics at Harvard University, a senior fellow of the Hoover Institution of Stanford University , and a research associate of the National Bureau of Economic Research. He has a Ph.D. in economics from Harvard University and a B.S. in physics from Caltech. Barro is co-editor of Harvard’s Quarterly Journal of Economics and was recently President of the Western Economic Association and Vice President of the American Economic Association. He is honorary dean of the China Economics & Management Academy, Central University of Beijing. He was a viewpoint columnist for Business Week from 1998 to 2006 and a contributing editor of The Wall Street Journal from 1991 to 1998. He has written extensively on macroeconomics and economic growth. Noteworthy research includes empirical determinants of economic growth , economic effects of public debt and budget deficits, and the formation of monetary policy. Recent books include Macroeconomics: A Modern Approach from Thompson/Southwestern, Economic Growth (2nd edition, written with Xavier Sala-i-Martin), Nothing Is Sacred: Economic Ideas for the New Millennium, Determinants of Economic Growth, and Getting It Right: Markets and Choices in a Free Society, all from MIT Press. Current research focuses on two very different topics: the interplay between religion and political economy and the impact of rare disasters on asset markets Where: Level 5, The Treasury, 1 The Terrace When: 1:30 pm - 3:00 pm Thursday 17 March 2011 RSVP: Ellen Shields by Friday 4 March 2011 To confirm your attendance, contact: For more information, contact: Ellen Shields Grant Scobie Program Administrator Convenor Academic Linkages Programme [email protected] [email protected] Ph: 04 890 7202 Ph: 04 917 6005. -
A Politico-Economic Model of Aging, Technology Adoption and Growth Francesco Lancia and Giovanni Prarolo
A Politico-Economic Model of Aging, Technology Adoption and Growth Francesco Lancia and Giovanni Prarolo NOTA DI LAVORO 48.2007 APRIL 2007 KTHC – Knowledge, Technology, Human Capital Francesco Lancia, University of Bologna Giovanni Prarolo, University of Bologna and Fondazione Eni Enrico Mattei This paper can be downloaded without charge at: The Fondazione Eni Enrico Mattei Note di Lavoro Series Index: http://www.feem.it/Feem/Pub/Publications/WPapers/default.htm Social Science Research Network Electronic Paper Collection: http://ssrn.com/abstract=984242 The opinions expressed in this paper do not necessarily reflect the position of Fondazione Eni Enrico Mattei Corso Magenta, 63, 20123 Milano (I), web site: www.feem.it, e-mail: [email protected] A Politico-Economic Model of Aging, Technology Adoption and Growth Summary Over the past century, all OECD countries have been characterized by a dramatic increase in economic conditions, life expectancy and educational attainment. This paper provides a positive theory that explains how an economy might evolve when the longevity of its citizens both influences and is influenced by the process of economic development. We propose a three periods OLG model where agents, during their lifetime, cover different economic roles characterized by different incentive schemes and time horizon. Agents’ decisions embrace two dimensions: the private choice about education and the public one upon innovation policy. The theory focuses on the crucial role played by heterogeneous interests in determining innovation policies, which are one of the keys to the growth process: the economy can be discontinuously innovation- oriented due to the different incentives of individuals and different schemes of political aggregation of preferences. -
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Job Name:2178263 Date:15-03-05 PDF Page:2178263pbc.p1.pdf Color: Cyan Magenta Yellow Black Thelmpaet 01 SoelalSeeurlty on PrivateSaving TheImpact 01 SocialSecurity on Private Saving Evidenee from theU.S.Time Series RobertJ. Barro Withareplyby Martin reldstela American Enterprise Institute for Public Policy Research Washington, D.C. Distributed to the Trade by National Book Network, 15200 NBN Way, Blue Ridge Summit, PA 17214. To order call toll free 1-800-462-6420 or 1-717-794-3800. For all other inquiries please contact the AEI Press, 1150 Seventeenth Street, N.W., Washington, D.C. 20036 or call 1-800-862-5801. Robert J. Barro is professor of economics at the University of Rochester. Martin Feldstein is professor of economics at Harvard Uni versity and president of the National Bureau of Economic Research. Library of Congress Cataloging in Publication Data Barro, Robert J The impact of social security on private saving. (AEI studies; 199) 1. Social security-United States. 2. Saving and investment-United States. I. Feldstein, Martin 5., joint author. II. Title. III. Series: American Enterprise Institute for Public Policy Research. HD7125.B33 332'.0415'0973 78-16945 ISBN 0-8447-3301-6 AEI studies 199 ©1978 by American Enterprise Institute for Public Policy Research, Washington, D.C. Permission to quote from or to reproduce materials in this publication is granted when due acknowledgment is made. The views expressed in the publications of the American Enterprise Institute are those of the authors and do not necessarily reflect the views of the staff, advisory panels, officers, or trustees of AEI. -
Ordinary Differential Equations
Ordinary Di↵erential Equations Macroeconomic Analysis Recitation 1 Yang Jiao⇤ 1 Introduction We will cover some basics of ordinary di↵erential equations (ODE). Within this class, we deal with di↵erential equations, whose variable of interest takes derivative with respect to ˙ dYt time t.DenoteYt = dt ,whereYt can be a scalar or vector. A general explicit form of ODE is Y˙t = f(Yt,t)(1) 2 First-Order Di↵erential Equations Autonomous equation:y ˙t = f(yt), an equation is autonomous when it depends on • ↵ time only through the variable itself. Example: kt = skt δkt,wheres, ↵ and δ are constants. − c˙t Linear equation:y ˙t = atyt + bt,whereat and bt are taken as given. Example: = • ct 1 (r ⇢), where γ and ⇢ are parameters, while r is a given function of t. γ t − t Homogeneous: set the above linear di↵erential equation b =0.Thisterminologyalso • t applies to high-order di↵erential equations: e.g.y ¨t = gty˙t + htyt. Autonomous equation can be solved (illustrated) graphically, while linear equation admits analytical solution. 2.1 Analytical Solution A homogeneous di↵erential equation y˙t = atyt (2) Divide both sides by yt, y˙t = at (3) yt ⇤Please email me if you find errors or typos to [email protected]. All comments and suggestions are welcome and appreciated. 1 dlog(y ) t = a (4) ) dt t Therefore, t yt = C exp( asds)(5) Z0 where C is determined by boundary condition. A linear di↵erential equation y˙t = atyt + bt (6) Rearrange the above equation as y˙ a y = b (7) t − t t t Multiply both sides by exp( t a ds), we obtain − 0 s t R t t y˙ exp( a ds) a y exp( a ds)=b exp( a ds)(8) t − s − t t − s t − s Z0 Z0 Z0 That is t t d[yt exp( asds)] − 0 = b exp( a ds)(9) dt t − s R Z0 t t u y =exp( a ds)( b exp( a ds)du + C)(10) ) t s u − s Z0 Z0 Z0 where C is pinned down by boundary condition. -
Optimal Management of Indexed and Nominal Debt
ANNALS OF ECONOMICS AND FINANCE 4, 1–15 (2003) Optimal Management of Indexed and Nominal Debt Robert Barro Department of Economics , Harvard University Cambridge, MA 02138-3001, USA E-mail: [email protected] A tax-smoothing objective is used to assess the optimal composition of pub- lic debt with respect to maturity and contingencies. This objective motivates the government to make its debt payouts contingent on the levels of public outlay and the tax base. If these contingencies are present, but asset prices of non-contingent indexed debt are stochastic, then full tax smoothing dictates an optimal maturity structure of the non-contingent debt. If the certainty- equivalent outlays are the same for each period, then the government should guarantee equal real payouts in each period, that is, the debt takes the form of indexed consols. This structure insulates the government’s budget constraint from unpredictable variations in the market prices of indexed bonds of various maturities. If contingent debt is precluded, then the government may want to depart from a consol maturity structure to exploit covariances among public outlay, the tax base, and the term structure of real interest rates. However, if moral hazard is the reason for the preclusion of contingent debt, then this con- sideration also deters exploitation of these covariances and tends to return the optimal solution to the consol maturity structure. The issue of nominal bonds may allow the government to exploit the covariances among public outlay, the tax base, and the rate of inflation. But if moral-hazard explains the absence of contingent debt, then the same reasoning tends to make nominal debt issue undesirable. -
Money and the Welfare Cost of Inflation in an R&D-Growth Model
A Tale of Two Growth Engines: Interactive Effects of Monetary Policy and Intellectual Property Rights* Angus C. Chu, Ching-Chong Lai, and Chih-Hsing Liao Final Version: September 2018 * The authors would like to thank Juin-Jen Chang, Chi-Ting Chin, Fu-Sheng Hung, Yiting Li, Ming-Fu Shaw, and two anonymous referees for their insightful comments. The usual disclaimer applies. ANGUS C. CHU is a professor of economics at China Center for Economic Studies, School of Economics, Fudan University and a research fellow at Shanghai Institute of International Finance and Economics (E-mail: [email protected]). CHING-CHONG LAI is a Distinguished Research Fellow at the Institute of Economics, Academia Sinica, and a Chair Professor at the Department of Economics, National Cheng Chi University, Institute of Economics, National Sun Yat-Sen University, and Department of Economics, Feng Chia University (E-mail: [email protected]). CHIH-HSING LIAO is an associate professor at the Department of Economics, Chinese Culture University, (E-mail: [email protected]) A Tale of Two Growth Engines: Interactive Effects of Monetary Policy and Intellectual Property Rights ______________________________________________________________________________ Abstract How do intellectual property rights that determine the market power of firms influence the growth and welfare effects of monetary policy? To analyze this question, we develop a monetary hybrid endogenous growth model in which R&D and capital accumulation are both engines of long-run economic growth. We find that monetary expansion hurts economic growth and social welfare by reducing R&D and capital accumulation. Furthermore, a larger market power of firms strengthens these growth and welfare effects of monetary policy through the R&D channel but weakens these effects through the capital-accumulation channel. -
Government Spending in a Simple Model of Endogeneous Growth
Government Spending in a Simple Model of Endogeneous Growth The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters Citation Barro, Robert J. 1990. Government spending in a simple model of endogeneous growth. Journal of Political Economy 98(S5): 103-125. Published Version doi:10.1086/261726 Citable link http://nrs.harvard.edu/urn-3:HUL.InstRepos:3451296 Terms of Use This article was downloaded from Harvard University’s DASH repository, and is made available under the terms and conditions applicable to Other Posted Material, as set forth at http:// nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of- use#LAA Government Spending in a Simple Model of Endogenous Growth Robert J. Barro Harvard Universityand National Bureau of Economic Research One strand of endogenous-growth models assumes constant returns to a broad concept of capital. I extend these models to include tax- financed government services that affect production or utility. Growth and saving rates fall with an increase in utility-type expendi- tures; the two rates rise initially with productive government expen- ditures but subsequently decline. With an income tax, the decen- tralized choices of growth and saving are "too low," but if the production function is Cobb-Douglas, the optimizing government still satisfies a natural condition for productive efficiency. Empirical evidence across countries supports some of the hypotheses about government and growth. Recent models of economic growth can generate long-term growth without relying on exogenous changes in technology or population. Some of the models amount to theories of technological progress (Romer 1986; this issue) and others to theories of population change (Becker and Barro 1988). -
Secular Stagnation and Creative Destruction: Reading Robert Gordon
Chapter for inclusion in forthcoming book “Schumpeter’s Capitalism, Socialism and Democracy A Twenty first Century Agenda” Edited by Leonardo Burlamaqui and Rainer Kattel Routledge – 2018 Secular Stagnation and Creative Destruction: Reading Robert Gordon through a Schumpeterian Lens* 7 November 2017 Fred Block, Department of Sociology, UC Davis Returning to Schumpeter’s Capitalism, Socialism and Democracy after seventy-five years is not at all an antiquarian exercise. On the contrary, it is vitally important for anyone trying to understand our current political economic situation. Schumpeter sought to make sense of the turbulent decades that had produced the First World War, the Bolshevik Revolution, the Great Depression, and the Second World War. Schumpeter was, above all, a theorist of historical discontinuity; he did not see societies or economies moving along some smooth trajectory, but rather, he emphasized disruption, creative destruction, and the likelihood of deep economic downturns. In this sense, Schumpeter’s approach contrasts sharply with the views that have dominated the social sciences since the 1950s. In parallel with the emergence of the United States as the dominant global power after World War II, the social sciences have generally emphasized continuity, linearity, and stability. This is most evident in neo-classical economics * I am grateful to the editors and to Larry Hirschhorn, Matthew Keller, and Marian Negoita for feedback on an earlier draft. 1 with its focus on the propensity of market economies to achieve equilibrium, but similar themes are echoed across the social sciences. In sociology and political science, for example, much work emphasizes path dependence – the tendency for social or political development to proceed along the same track that had been established sometime in the past. -
George Mason University Department of Economics Economics 715 Macroeconomics Theory I Fall Semester 2010
George Mason University Department of Economics Economics 715 Macroeconomics Theory I Fall Semester 2010 Prof. Carlos D. Ramírez Enterprise Hall 341 Tel. 703-993-1145 Office Hours: by appointment (send me an e-mail) e-mail: [email protected] Teaching Assistant: Jeffrey Horn e-mail: [email protected] I. Introduction This course will introduce you to the main topics in growth (about half of the course), as well as traditional issues in short-term economic fluctuations (remainder of the course). In the process you are expected to (and hopefully will) develop basic analytical skills (see mathematical preliminaries handout) necessary to solve and understand macroeconomic models. The course is designed for first-year Ph.D. students in economics. Prerequisites include macroeconomics at the undergraduate level, as well as a good understanding of calculus and basic differential equations. Students are expected to be thoroughly familiar with the material in any of the following intermediate macroeconomics texts: (a) Macroeconomics (R. Dornbusch, S. Fisher, and R. Startz,) now it is 11th edition! (b) Macroeconomics: Economic Growth, Fluctuations, and Policy (R. Hall & D.H. Papell) 6th edition. (c) Macroeconomics (N.G. Mankiw) 7th edition. This is the best selling undergraduate macroeconomics textbook. (d) Macroeconomics (A. Abel, B. Bernanke, and D. Croushore) 7th edition. II. Class Requirements: This class requires a great amount of commitment and dedication. There will be a midterm (October 18, 2010) and a final (December 20, 2010). The midterm will count for 40% of your grade. The comprehensive final examination will determine 55% of the final grade. The remaining 5% will come from doing problem sets.