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(Un)anticipated Technological Change in an Endogenous Growth Model

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  • Bruce A. Conway

    (University of Illinois at Urbana-Champaign)

  • Klaus Reiner Schenk-Hoppé

    (Institute of Economics, University of Copenhagen)

Abstract

This paper examines numerically the impact of a negative exogenous shock to marginal productivity (such as ecological government regulation that becomes effective at some point in time) in an endogenous finite-time growth model with sluggish reallocation of human capital. The policy can be anticipated or unanticipated by firms, and it can also be announced but not implemented. It turns out that these frictions have a very strong long-run effect on output, consumption and on the optimal allocation of capital and labor in particular. The qualitative properties relate to homogenous labor models with positive productivity shocks. The problem is thus to maximize a function of a continuous system, where the system is subject to frictions and stepwise changes; for such a problem the application of calculus of variations necessary conditions is problematic. A numerical optimization method, which has had much success on qualitatively similar problems in engineering, has been employed.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 04-08.

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Length: 18 pages
Date of creation: Apr 2004
Date of revision:
Handle: RePEc:kud:kuiedp:0408

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Keywords: two-sector endogenous growth model; unanticipated and anticipated technological change; frictions in reallocation of human capital; Runge-Kutta parallel shooting algorithm;

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  1. Edmund Phelps & Gylfi Zoega, 2001. "Structural booms," Economic Policy, CEPR & CES & MSH, vol. 16(32), pages 83-126, 04.
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