An Optimal Control Model of Technology Transition

This paper discusses the use of optimization software to solve an optimal control problem arising in the modeling of technology transition. We set up a series of increasingly complex models with such features as learning-by-doing, adjustment cost, and capital investment. The models are written in continuous time and then discretized by using different methods to transform them into large-scale nonlinear programs. We use a modeling language and numerical optimization methods to solve the optimization problem. Our results are consistent with ndings in the literature and highlight the impact the discretization choice has on the solution and accuracy.

Saving and investment in a two-sector model of endogenous growth of a small open economy

We develop a two sector model of endogenous growth. The export sector is the only sector that generates technological progress. Technological knowledge can be used by the import sector. Firms face adjustment costs for investment. The model has well defined equations for the growth rate of capital, and for the growth rate of consumption. The model has a steady state solution. We study the relation between the interest rate and the growth rate. The optimal growth rate is higher than that achieved in the market economy without government. The optimal policy is an investment subsidy in the export sector.

Time is money: life cycle rational inertia and delegation of investment management : [Version November 2013]

We investigate the theoretical impact of including two empirically-grounded insights in a dynamic life cycle portfolio choice model. The first is to recognize that, when managing their own financial wealth, investors incur opportunity costs in terms of current and future human capital accumulation, particularly if human capital is acquired via learning by doing. The second is that we incorporate age-varying efficiency patterns in financial decisionmaking. Both enhancements produce inactivity in portfolio adjustment patterns consistent with empirical evidence. We also analyze individuals’ optimal choice between self-managing their wealth versus delegating the task to a financial advisor. Delegation proves most valuable to the young and the old. Our calibrated model quantifies welfare gains from including investment time and money costs, as well as delegation, in a life cycle setting

A Dynamic Characterization of Efficiency

The definition and measurement of dynamic economic performance has been addressed obliquely in the literature with the notions of scope economies and capacity utilization measures, but little work has focused on develop the static theory analogs of efficiency measures into the dynamic context. This paper is an attempt to identify some of the conceptual and methodological issues to be addressed. A model allowing for dynamic production decisions in the face of inefficiency is presented to illustrate some of the issues and the extensions necessary to identify truly dynamic performance measures.Agricultural and Food Policy, Production Economics,

A Dynamic Characterization of Efficiency

The definition and measurement of dynamic economic performance has been addressed obliquely in the literature with the notions of scope economies and capacity utilization measures, but little work has focused on develop the static theory analogs of efficiency measures into the dynamic context. This paper is an attempt to identify some of the conceptual and methodological issues to be addressed. A model allowing for dynamic production decisions in the face of inefficiency is presented to illustrate some of the issues and the extensions necessary to identify truly dynamic performance measures.

Persistent Real Exchange Rates

Three well known facts that characterize exchange rate data are: (a) the high correlation between bilateral nominal and real exchange rates; (b) the high degree of persistence in real exchange rate movements; and (c) the high volatility of real exchange rates. This paper attempts a joint, albeit partial, rationalization of these facts in an environment with no staggered contracts and where prices are preset for only one quarter. There are two key innovations in the paper. First, we augment a standard two-country open economy model with learning-by-doing in production at the firm level. This induces monopolistically competitive firms to endogeneize the productivity effect of their price setting behavior. Specifically, firms endogenously choose not to adjust prices by the full proportion of a positive monetary shock in order to take advantage of the productivity benefits of higher production. Second, we introduce habits in leisure. This makes the labor supply decision dynamic and adds an additional source of propagation. We show that the calibrated model can quantitatively reproduce significant fractions of the aforementioned facts. Moreover, as in the data, the model also produces a positive correlation between the terms of trade and the nominal exchange rate.Real exchange rate movements, endogenous price stickiness, learning-by-doing

The implications of wage structure rigidity on human capital accumulation, economic growth and unemployment: A Schumpeterian approach to endogenous growth theory

The approach put forward in this article is based on Schumpeter`s idea of creative destruction, the competitive process by which entrepreneurs are always looking for new ideas that will render their rivals` ideas obsolete. I present a model in which the rate of economic growth is sensitive to the interactions between relative wage and human capital accumulation. Human capital is an important source of sustained growth. By focusing explicity on innovation as an economic activity with different economic causes and effects, this article tries to open the door to a deeper understanding of how labor market rigidity in the form of wage structure rigidity affects human capital accumulation, and thereby the long-run growth through their effects on economic agent`s incentives to engage in knowledge-producing (education) activities. New technological vintages make it necessary that workers must become reeducated in order to qualify as skilled workers with the new generation of technology. Wage structure rigidity limits the incentives of agents to accumulate and adjust their human capital. This will be harmful to growth and employment. --economic growth,human capital accumulation,innovation,labor market rigidity,unemployment,wage (structure) rigidity

Delivering Endogenous Inertia in Prices and Output

This paper presents a DGE model in which aggregate price level inertia is generated endogenously by the optimizing behaviour of price setting ?rms. All the usual sources of inertia are absent here ie., all fi?rms are simultaneously free to change their price once every period and face no adjustment costs in doing so. Despite this, the model generates persistent movements in aggregate output and in?ation in response to a nominal shock. Two modi?cations of a standard one-quarter pre-set price model deliver these results: learning-by-doing and habit formation in leisure.Endogenous price stickiness, Business Cycles, Inflation, Nominal rigidities, Learning-by-doing, Habit formation, Propagation mechanisms, Persistence.