Chapter 2 the AK Model
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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 -
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”. -
Venture Capital and Capital Gains Taxation
VENTURE CAPITAL AND CAPITAL GAINS TAXATION James M. Poterba Massachusetts Institute of Technology and NBER The need to encourage venture capital is often adduced as an important justification for reducing the capital gains tax rate. For example, Norman Ture writes that For both outside investors and entrepreneurs [in new businesses] the reward sought is primarily an increase in the value of the equity investment. For outside investors in particular, it is important to be able to realize the appreciated capital and to transfer it into promising new ventures. Raising the tax on capital gains blunts the inducement for undertaking these ventures.1 This paper investigates the links between capital gains taxation and the a amount of venture capital activity. It provides framework for analyzing the channels through which tax policy affects start-up firms. on The first section presents time-series data venture capital invest ment in the United States. Beyond the well-known observation that venture investment increased in the early 1980s, perhaps coincidentally after the capital gains tax reduction of 1978, this section compares the growth rate of venture capital activity in the United States, Britain, and Canada. The U.S. venture industry expanded much more quickly than was This paper prepared for the NBER conference "Tax Policy and the Economy" held in on am Washington, D.C., 15 November 1988.1 grateful to the National Science Foundation for research support and to Thomas Barthold, David Cutler, Jerry Hausman, and Lawrence Summers for helpful comments. This research is part of the NBER Program in Taxation. 1 Wall Street Journal, 8 September 1988, p. -
Asset Pricing with Concentrated Ownership of Capital and Distribution Shocks
FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES Asset Pricing with Concentrated Ownership of Capital and Distribution Shocks Kevin J. Lansing Federal Reserve Bank of San Francisco August 2015 Working Paper 2011-07 http://www.frbsf.org/publications/economics/papers/2011/wp11-07bk.pdf Suggested citation: Kevin J. Lansing. 2015. “Asset Pricing with Concentrated Ownership of Capital and Distribution Shocks.” Federal Reserve Bank of San Francisco Working Paper 2011- 07. http://www.frbsf.org/economic-research/publications/working-papers/wp2011- 07.pdf The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System. Asset Pricing with Concentrated Ownership of Capital and Distribution Shocks Kevin J. Lansingy Federal Reserve Bank of San Francisco August 18, 2015 Abstract This paper develops a production-based asset pricing model with two types of agents and concentrated ownership of physical capital. A temporary but persistent “distribution shock” causes the income share of capital owners to fluctuate in a procyclical manner, consistent with U.S. data. The concentrated ownership model significantly magnifies the equity risk premium relative to a representative-agent model because the capital owners’ consumption is more-strongly linked to volatile dividends from equity. With a steady-state risk aversion coeffi cient around 4, the model delivers an unlevered equity premium of 3.9% relative to short-term bonds and a premium of 1.2% relative to long-term bonds. Keywords: Asset Pricing, Equity Premium, Term Premium, Distribution Shocks, Income Inequality. -
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. -
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. -
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. -
On the Mechanics of Economic Development*
Journal of Monetary Economics 22 (1988) 3-42. North-Holland ON THE MECHANICS OF ECONOMIC DEVELOPMENT* Robert E. LUCAS, Jr. University of Chicago, Chicago, 1L 60637, USA Received August 1987, final version received February 1988 This paper considers the prospects for constructing a neoclassical theory of growth and interna tional trade that is consistent with some of the main features of economic development. Three models are considered and compared to evidence: a model emphasizing physical capital accumula tion and technological change, a model emphasizing human capital accumulation through school ing. and a model emphasizing specialized human capital accumulation through learning-by-doing. 1. Introduction By the problem of economic development I mean simply the problem of accounting for the observed pattern, across countries and across time, in levels and rates of growth of per capita income. This may seem too narrow a definition, and perhaps it is, but thinking about income patterns will neces sarily involve us in thinking about many other aspects of societies too. so I would suggest that we withhold judgment on the scope of this definition until we have a clearer idea of where it leads us. The main features of levels and rates of growth of national incomes are well enough known to all of us, but I want to begin with a few numbers, so as to set a quantitative tone and to keep us from getting mired in the wrong kind of details. Unless I say otherwise, all figures are from the World Bank's World Development Report of 1983. The diversity across countries in measured per capita income levels is literally too great to be believed. -
5 Theories of Endogenous Growth
Economics 314 Coursebook, 2012 Jeffrey Parker 5 THEORIES OF ENDOGENOUS GROWTH Chapter 5 Contents A. Topics and Tools ............................................................................. 1 B. The Microeconomics of Innovation and Human Capital Investment ........... 3 Returns to research and development .............................................................................. 4 Human capital vs. knowledge capital ............................................................................. 6 Returns to education ..................................................................................................... 6 C. Understanding Romer’s Chapter 3 ....................................................... 9 Introduction .................................................................................................................9 The textbook’s modeling strategy and the research literature ............................................. 9 The basic setup of the R&D model ............................................................................... 10 The knowledge production function .............................................................................. 11 Analysis of the model without capital ........................................................................... 12 The R&D model with capital ...................................................................................... 16 Returns to scale and endogenous growth ....................................................................... 17 Scale effects in -
THE DEBATE of the MODERN THEORIES of REGIONAL ECONOMIC GROWTH Ra Ximhai, Vol
Ra Ximhai ISSN: 1665-0441 [email protected] Universidad Autónoma Indígena de México México Díaz-Bautista, Alejandro; González-Andrade, Salvador THE DEBATE OF THE MODERN THEORIES OF REGIONAL ECONOMIC GROWTH Ra Ximhai, vol. 10, núm. 6, julio-diciembre, 2014, pp. 187-206 Universidad Autónoma Indígena de México El Fuerte, México Available in: http://www.redalyc.org/articulo.oa?id=46132135014 How to cite Complete issue Scientific Information System More information about this article Network of Scientific Journals from Latin America, the Caribbean, Spain and Portugal Journal's homepage in redalyc.org Non-profit academic project, developed under the open access initiative Ra Ximhai Revista de Sociedad, Cultura y Desarrollo Sustentable Ra Ximhai Universidad Autónoma Indígena de México ISSN: 1665-0441 México 2014 THE DEBATE OF THE MODERN THEORIES OF REGIONAL ECONOMIC GROWTH Alejandro Díaz-Bautista y Salvador González-Andrade Ra Ximhai, Julio - Diciembre, 2014/Vol. 10, Número 6 Edición Especial Universidad Autónoma Indígena de México Mochicahui, El Fuerte, Sinaloa. pp. 187 - 206 Ra Ximhai Vol. 10, Número 6 Edición Especial, Julio - Diciembre 2014 DEBATE EN LAS TEORÍAS MODERNAS DE CRECIMIENTO REGIONAL THE DEBATE OF THE MODERN THEORIES OF REGIONAL ECONOMIC GROWTH Alejandro Díaz-Bautista1 y Salvador González-Andrade2 1He is Professor of Economics and Researcher at the Department of Economic Studies, El Colegio de la Frontera Norte (COLEF), he has also been a member of the United States - Mexico Border Governors Council of Economic Advisers. Email: [email protected]. 2He is Professor of Economics and Researcher at the Department of Economic Studies, COLEF. Email: [email protected] RESUMEN ¿Cómo podemos explicar las diferencias en el crecimiento económico en las distintas regiones del país y del mundo en los últimos sesenta años? El objetivo del estudio es el de realizar una revisión de la literatura tradicional de los principales modelos del crecimiento económico regional. -
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). -
Endogenous Growth Theory: Intellectual Appeal and Empirical Shortcomings Author(S): Howard Pack Source: the Journal of Economic Perspectives, Vol
American Economic Association Endogenous Growth Theory: Intellectual Appeal and Empirical Shortcomings Author(s): Howard Pack Source: The Journal of Economic Perspectives, Vol. 8, No. 1 (Winter, 1994), pp. 55-72 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/2138151 Accessed: 02/08/2010 15:57 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/action/showPublisher?publisherCode=aea. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. American Economic Association is collaborating with JSTOR to digitize, preserve and extend access to The Journal of Economic Perspectives. http://www.jstor.org Journal of EconomicPerspectives- Volume 8, Number1-Winter 1994-Pages 55- 72 Endogenous Growth Theory: Intellectual Appeal and Empirical Shortcomings Howard Pack F ollowing along the path pioneered by Romer (1986) and Lucas (1988), endogenous growth theory has led to a welcome resurgence of interest in the determinants of long-term growth.