ECON 390 - Quantitative Analysis of the Macroeconomy Amanda M Michaud

ECON 390 - Quantitative Analysis of the Macroeconomy Amanda M Michaud Problem Set #4: Compute Growth Facts for your Country Due February 15 at 9am 1 Objective Calculate growth facts for your country. This will help you learn something about how your economy functions. These will also be the facts you will calibrate your model economy to. 2 Method 1. Gather your data from Problem Set 3 and read them into Matlab. 2. Calibrate the model. Compute a (capital share) and d (depreciation) following the formulae in the notes, if possible. Otherwise, set d = 0.10 and a = 0.3. 3. Construct a time-series of capital stocks by the perpetual inventory method. 4. Draw the following four time-series plots related to Kaldor’s facts. (Choose scales, number of plots, labels, titles, etc. such that these plots are easily read and understood.) • Output per worker • Capital per worker • Capital to output ratio • Real payments to labor 5. Growth Accounting: • Calculate the series for At (Solow residual-See lecture notes) • Plot At , Kt/Yt and ht , normalizing each to one in the first year of your sample. (ie: divide every entry in each time series by the first value in that series.) • Decompose growth of GDP per working age person using the equation derived in lecture notes: ln( Yt+1/Nt+1 Yt/Nt ) = 1 1 - a [ln(At+1) - ln(At)] + a 1 - a [ln( kt+1 yt+1 ) - ln( kt yt )] + ln(Lt+1/Nt+1) - ln(Lt/Nt) Create a bar graph showing the contribution of each component to GDP growth by decade. 1 ECON 390 - Quantitative Analysis of the Macroeconomy Amanda M Michaud 3 Product Attach your script and a .pdf or word document that includes all of your graphs and brief, yet thoughtful, answers to the following questions (You can edit the file I post with your answers and graphs, that’s fine.): • What are Kaldor’s facts? Why are they important for helping macroeconomists build better models? • Does your country exhibit the same stylized facts documented by Kaldor? If not, speculate on why. Is it some mis-measurement in the data (ie: labor is not really well represented by working age population)? Or is the economy just fundamentally different than that of the US? How so? • Describe in words what Growth Accounting is. Explain the interpretation of the Solow Residual and how it relates to our model construct: TFP. • Summarize your findings for the contribution of each component- TFP growth, CapitalOutput ratio growth, hours per working age person growth- to the growth of GDP per working age person. Does the contribution of each factor change over different time periods? Is one factor always important? Unimportant? How do you interpret this? You may have to do some small research about your country to inform your answers. Wikipedia is fine, but make sure you are building some expert knowledge that you can convey in your policy report later on. 2