Technology (and policy) shocks in models of endogenous growth

Our objective is to understand how fundamental uncertainty can affect the long-run growth rate and what factors determine the nature of the relationship. Qualitatively, we show that the relationship between volatility in fundamentals and policies and mean growth can be either positive or negative. We identify the curvature of the utility function as a key parameter that determines the sign of the relationship. Quantitatively, we find that when we move from a world of perfect certainty to one with uncertainty that resembles the average uncertainty in a large sample of countries, growth rates increase, but not enough to account for the large differences in mean growth rates observed in the data. However, we find that differences in the curvature of preferences have substantial effects on the estimated variability of stationary objects like the consumption/output ratio and hours worked.Business cycles - Econometric models ; Economic development

Technology (and Policy) Shocks in Models of Endogenous Growth

Is there a trade-off between fluctuations and growth? The empirical evidence is mixed, with some studies (Kormendi and Meguire (1985)) finding a positive relationship, while others (Ramey and Ramey (1995)) finding the a negative one. Our objective in this paper is to understand how fundamental uncertainty can affect the long run growth rate, and what are the factors that determine the nature (positive or negative) of the relationship. Qualitatively, we show that the relationship between volatility in fundamentals and policies and mean growth can be either positive or negative. We identify the curvature of the utility function as a key parameter that determines the sign of the relationship. Quantitatively, we find that when we move from a world of perfect certainty to one with uncertainty that resembles the average uncertainty in a large sample of countries, growth rates increase somewhere between 0.17% and 0.80%, with 0.20% being a reasonable' estimate. Even though these are nontrivial changes, they are not large enough be themselves to account for the large differences in mean growth rates observed in the data. However, we find that differences in the curvature of preferences have very substantial effects on the estimated variability of stationary objects like the consumption/output ratio and hours worked. For this reason, we expect that the models considered in this paper will provide the basis of sharp estimates of the curvature parameter.

Heavy Viable Trajectories of Controlled Systems

We define and study the concept of heavy viable trajectories of a controlled system with feedbacks. Viable trajectories are trajectories satisfying at each instant given constraints on the state. The controls regulating viable trajectories evolve according a set-valued feedback map. Heavy viable trajectories are the ones which are associated to the controls in the feedback map whose velocity has at each instant the minimal norm. We construct the differential equation governing the evolution of the controls associated to heavy viable trajectories and we prove their existence

Generalized Median Voter Schemes and Committees.

voting ; economic models

Technology (and policy) shocks in models of endogenous growth

growth models;business cycles;technology;economic policy

Technology (and policy) shocks in models of endogenous growth, NBER Working Paper No. 7063

Our objective is to understand how fundamental uncertainty can affect the long-run growth rate and what factors determine the nature of the relationship. Qualitatively, we show that the relationship between volatility in fundamentals and policies and mean growth can be either positive or negative. We identify the curvature of the utility function as a key parameter that determines the sign of the relationship. Quantitatively, we find that when we move from a world of perfect certainty to one with uncertainty that resembles the average uncertainty in a large sample of countries, growth rates increase, but not enough to account for the large differences in mean growth rates observed in the data. However, we find that differences in the curvature of preferences have substantial effects on the estimated variability of stationary objects like the consumption/output ratio and hours worked. *We thank Larry Christiano, Martin Eichenbaum, Fernando Alvarez, and Craig Burnside for their help, Henry Siu for assistance, and the National Science Foundation for financial support. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System

Fluctuations in Convex Models of Endogenous Growth I: Growth Effects

Is there a trade-off between fluctuations and growth? The empirical evidence is mixed, with some studies finding a positive relationship, while others find a negative one. Our objectives are to understand how fundamental uncertainty affects the long run growth rate and to identify important factors determining this relationship in a convex endogenous growth model. Qualitatively, we show that the relationship between volatility in fundamentals (or policies) and mean growth can be either positive or negative. The curvature of the utility function is a key parameter that determines the sign of the relationship. Quantitatively, an increase in uncertainty always increases the growth rate in our calibrated models. Though the changes we find are nontrivial, they are not large enough by themselves to account for the large differences in growth rates observed in the data. We also find that differences in the curvature of preferences have very substantial effects on the estimated variability of stationary objects like the consumption-output ratio and hours worked. For this reason, we expect that the models considered in this paper will provide the basis of sharp estimates of the curvature parameter. (Copyright: Elsevier)Growth; Uncertainty; Human capital investment

Abstract

Is there a trade-off between fluctuations and growth? The empirical evidence is mixed, with some studies finding a positive relationship, while others find a negative one. Our objectives in this paper are to understand how fundamental uncertainty can affect the long run growth rate, and to identify those factors that are important in determining the nature of this relationship. Qualitatively, we show that the relationship between volatility in fundamentals (or policies) and mean growth can be either positive or negative. We identify the curvature of the utility function as a key parameter that determines the sign of the relationship. Quantitatively, for reasonably calibrated models, an increase in uncertainty always increases the growth rate. We find that moving from a deterministic world to one with uncertainty that resembles the average uncertainty in a large sample of countries, growth rates increase by 0.2 % to 0.80%, with 0.25 % being a “reasonable ” estimate. Though these are nontrivial changes, they are not large enough by themselves to account for the large differences in growth rates observed in the data. We also find that differences in the curvature of preferences have very substantial effects on the estimated variability of stationary objects like the consumption-output ratio and hours worked. For this reason, we expect that the models considered in this paper will provide the basis of sharp estimates of the curvature parameter