Posts Tagged ‘Economic Dynamics’

By His bootstrapsI apload here an exposition of the generalized Solow model of growth, i.e. the one including both physical and human capital, but with capabilities of sustained endogenous long-term growth. This came out of the Macro I graduate class in my University that I currently help. At the end, the pamphlet contains the discretization of the model and a Dynare script to simulate it.

 

Generalized Solow endogenous growth

 

 

 

Vintage megaphoneThe first paper to present the Influential Expectations HypothesisIEH has seen the light of day (in Greek and in English at the same time). It has been published in the “Greek Economic Outlook”, a peer-reviewed scientific journal (albeit of local character) published by the Centre Of Planning and Economic Research (KEPE)   vol. 28, October 2015.

The Influential Expectations Hypothesis is a generalization of the Rational Expectations Hypothesis in the presence of heterogeneity of agents, private information, and specialization in predicting macroeconomic variables -all three actually observed phenomena. As a generalization, it includes REH as a special case.The hypothesis is not really behavioral -my aim is macroeconomics and to arrive at the aggregate level starting from micro-foundations that are consistent with current economic theory. I am not interested in hypothesizing about or modelling how the human mind works.

The specific paper presents how this expectations-formation hypothesis is constructed (the paper is months old -the theoretical foundations have since been refined and fortified considerably), a theoretical application on the Cobweb model (the one also used by John Muth for the first presentation of the Rational Expectations Hypothesis-REH), a comparison of theoretical results with those obtained under the REH (they differ markedly), as well as an indicative econometric application showing that the data support the IEH result.

The good thing about the IEH hypothesis is that in light of  the level of complexity it allows into a model, it results in a very intuitive formulation which moreover permits closed form solutions. The even better thing about it, is that it brings in really new results: I have also applied the hypothesis to the benchmark Optimal Growth model, and what my eyes saw emerging was fascinating (as well as realistic and convincing). I will submit the more mature theoretical formulation together with the Optimal Growth model application to an international journal for review and we will see what happens.

The Greek version of the paper:

2015 Papadopoulos A GREEK Influential Expectations Hypothesis Greek Economic Outlook 28

 

The English version of the paper:

2015 Papadopoulos A ENG Influential Expectations Hypothesis Greek Economic Outlook 28

OGMHere is  the ENGLISH version of the Blanchard-Weil Overlapping Generations model of growth. See the other post about what it contains.

It is identical to the Greek version, but a few pages shorter, because the English language has shorter words than the Greek language.

For my Macro I students : since this pamphlet lifts off your shoulders a great burden, I would suggest to compensate by giving special weight and inelastic labor to the following exercises contained therein: 1.1, 1.3, 2.3, 3.4, 4.1.

Overlapping Generations Blanchard Weil ENGLISH 15-11-2015

 

exponential growthI upload here the GREEK version of the most analytical educational take I have ever seen on the Blanchard-Weil Overlapping Generations model of growth. I have written it, by the way. The pamphlet contains an interesting extension, in that it calculates the implied, by the model, distribution of consumption and capital, something that also permits a deeper comparison with the representative household model.

I apologize to my non-Greek students and readers for not uploading at the same time the English version. I had in mind to just translate an older version of the pamphlet, but I ended up re-writing extensively its last parts, and this ate up the available time. I will, in a day or two, upload also the ENGLISH version.

Overlapping Generations Blanchard Weil GREEK 15-11-2015

Architect tableI upload here a Phase Diagram tutorial: how we construct it, and how it can be exploited to yield comparative statics results that may not be otherwise obtainable.

The tutorial is not comprehensive – it focuses on the basic growth models in economics that exhibit saddle-path stability.

Phase Diagrams Construction and Comparative Statics

Roller coaster

UPDATE 13-11-2015: A new .pdf has been uploaded

I upload here an educational application of the standard Ramsey model of long-run growth, to show that it predicts correctly, in a qualitative sense, what has happened and is still happening in the Greek economy due to the recent crisis and current depression.

Even though the model is concerned with long-run growth rather than with short- and mid-term fluctuations, still it is important to see that by shifting our horizon-focus in economic analysis, we do not end up with incompatible conclusions.

Current Greek Depression and the Ramsey growth model 13-11-2015

Robert Dorfman, Economist, 1916-2002

Robert Dorfman, Economist, 1916-2002

Almost 50 years after its publication, late Robert Dorfman’s paper on explaining to then-innocent economists the principles of Optimal Control theory,

Dorfman, R. (1969). An economic interpretation of optimal control theory. The American Economic Review, 59(5): pp. 817-831

remains a classic example of masterly knowledge (and perhaps of scientific imperialism also): reading it from Dorfman, one may get the impression that Optimal Control is just the mathematical formalization of basic economics principles.

And how better an opening sentence can be than (quote), “Capital Theory is the economics of time” ?

For any aspiring student of Economics, it is still required reading.

phase diagram

I upload here an updated and considerably expanded  older pamphlet of mine, about dynamic stability in economic models, one- or two-dimensional. The standard results are combined and tabulated compactly to provide a coherent picture, while I also treat in detail the  (many) cases of “Saddle-path stability” in systems of difference equations. Saddle-path stability is a central concept in dynamic economics, being the mathematical concept that is consistent with dynamic adjustment that results from purposeful behavior, and can accommodate structural shifts.

Dynamic Stability for economic models