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(Un)anticipated Technological Change in an Endogenous Growth Model

Author

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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.

Suggested Citation

  • Bruce A. Conway & Klaus Reiner Schenk-Hoppé, 2004. "(Un)anticipated Technological Change in an Endogenous Growth Model," Discussion Papers 04-08, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:0408
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    References listed on IDEAS

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    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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