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Technology (and policy) shocks in models of endogenous growth

  • Jones,L.E.
  • Manuelli,R.E.
  • Stacchetti,E.

    (University of Wisconsin-Madison, Social Systems Research Institute)

Our objective is to understand how fundamental uncertainty can affect the long-run growth rate and what factors determine the nature of the relationship. Qualitatively, we show that the relationship between volatility in fundamentals and policies and mean growth can be either positive or negative. We identify the curvature of the utility function as a key parameter that determines the sign of the relationship. Quantitatively, we find that when we move from a world of perfect certainty to one with uncertainty that resembles the average uncertainty in a large sample of countries, growth rates increase, but not enough to account for the large differences in mean growth rates observed in the data. However, we find that differences in the curvature of preferences have substantial effects on the estimated variability of stationary objects like the consumption/output ratio and hours worked.

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File URL: http://www.ssc.wisc.edu/~manuelli/research/astoch.pdf
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Paper provided by Wisconsin Madison - Social Systems in its series Working papers with number 9.

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Date of creation: 1999
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Handle: RePEc:att:wimass:19999
Contact details of provider: Postal: UNIVERSITY OF WISCONSIN MADISON, SOCIAL SYSTEMS RESEARCH INSTITUTE(S.S.R.I.), MADISON WISCONSIN 53706 U.S.A.

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