Economic Growth Models
Course description
The course will focus on general equilibrium models of economic growth. We shall consider the existing types of growth models and study the methods of solving each type of the models. We shall also discuss the observed growth facts and whether and how they are explained by various models. Studying various approaches to modeling growth, we shall also examine some policy-related issues (discuss various kinds of macroeconomic policies that can be targeted at promoting long-term growth).
The course consists of two parts. The first part covers exogenous growth models, often called the Neoclassical growth models. These include the Solow growth model, the Ramsey growth model, and the overlapping generations (OLG) models.
The second part of the course on economic growth studies endogenous growth models. We shall consider various ways of how endogenous growth can be introduced into the model. One way is to use a production function that violates the properties of the neoclassical production function. The simplest model of this type is the AK model. Next, we shall consider models that generate the AK form of production function on the aggregate. Further, we shall study another way to introduce endogenous growth: models including as the second sector of production either educational or R&D sector.
Throughout the course, we shall analyze the dynamics implied by each type of the model, consider the implications of each model, and how the model results can be applied.
During the exercise sessions and in homework assignments, students will practice a lot the methods of solving dynamic models of infinite horizon: the Bellman equation approach to solve infinite-horizon discrete-time dynamic models and the Pontryagin maximum principle to solve continuous-time models. The stess in studying these methods will lie upon the Pontryagin maximum principle since most of the models studied in this course are continuous-time models. The Bellman equation approach will be studied in application to one discrete model, in particular, to the OLG model with altruism, the optimization problem in which can be written in the infinite-horizon form.
Analyzing the model dynamics, we shall practice graphical representation of dynamics usingphase diagrams and shall also practice analytical derivation of the endogenous variables trajectories solving differential equations and systems of differential equations.
Learning outcomes of the course
Students are expected to learn the basic approaches to modeling growth, the techniques of solving such dynamic models, methods of the model dynamics analysis (analytical and graphical), and the main implications of each model considered.
Assessment
The grading is as follows: homework assignments (four problem sets) and exercise session’sactivity - 20%, Midterm Exam - 40%, and Final Exam - 40%. The final points obtained as the weighted average are then translated into the final grade for the course.
Main reading
Barro, Robert and Xavier Sala-i-Martin: Economic Growth. The MIT Press, 2nd ed., 2004.
Blanchard, Olivier J. and Stanley Fischer: Lectures on Macroeconomics. MIT Press, 1989.
Romer David: Advanced Macroeconomics. McGraw-Hill, 1996.
Aghion, Philippe and Peter Howitt: Endogenous Growth Theory. The MIT Press, 1998.