Economic Dynamics

Abstract

Overview of economic growth theory; In-depth analysis of economic growth models; Comparison to real-world growth processes.

Objective

Why is it that, in modern times, some countries are extremely poor while others are fairly rich? Why has the standard of living been increasing by a factor of about 6 during the last 100 years in most of OECD economies? These are the staggering questions which are at the center of economic growth theory. Generations of economists found it fascinating to think about the causes (and sometimes also about the consequences) of economic growth. This fascination has been expressed by Lucas (JME, 1988, p. 5) who stated that once one starts to think about economic growth, it is hard to think about anything else. Modern growth theory is characterized by an extensive use of formal concepts, methods and models. This course, among other things, aims at demonstrating how these models can be used to tackle the issues raised above. Specifically, there are three main objectives: (1) An overview of the theory of economic growth is provided (the models discussed are listed below); (2) It is shown how economic growth models are usually set up. In addition, an in-depth analysis of the models under study (e.g. stability analysis, simulation of the transition process) is conducted using a Mathematics program (Mathematica). There will be the opportunity for students to apply the methods in the computer-lab. (3) The qualitative as well as quantitative model implications are systematically compared to real-world growth processes. For instance, empirical time series are compared to theoretical time series (resulting from the model) and thereby the goodness of the model under study to explain economic growth is judged.

Content

PART I. 1. Introduction 2. Basic Concepts and Methods PART II. 3. The Neoclassical Growth Model 4. A Two-Sector Neoclassical Growth Model PART III. 5. A Growth Model with Adjustment Costs 6. A Basic Model with Indeterminacy 7. Multiple Equilibria: History versus Expectations PART IV. 8. R&D-based Endogenous Growth Models 9. Human-Capital-based Endogenous Growth Models PART V. 10. A stochastic AK model 11. Business Cycles and Growth

Resources