Sunday, March 13, 2011
In Hyde Park p. 208-210
There is a ridiculous amount of information in these two pages. The main point I think is that Romer finally came up with his model. The section talks about the mathematics used to get the model working (Pontryagin-style) then moves on to some of the problems associated with creating the model. A few of the problems faced were graphical representation (few personal computers and essentially no software), demonstrating stability in the model, etc. After finishing the model, "It came as a shock to read an editorial arguing that the space race had been good for economic growth, and realize that the abstractions in which he (Romer) was investing so heavily might one day have practical value." p.210
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A for Basil.
ReplyDeleteLet me clue you in on the ridiculous amount of information then.
There was no problem for Romer with the Pontryagin style math. People knew how to do that, it just wasn't trendy in Lucas' field.
The discussion about multiple equilibria and phase diagrams is now something that we do in Excel with Solver (as introduced in ECON 2500).
You've already seen the "knife-edge" problem. The context and implications are different, but the math is similar: it's why an autoregression with roots that sum to less than one plateaus, if they sum to larger than one we get explosive growth, and if they are exactly equal to one we get something that looks like the growth we actually observe.
Lastly, by using spillovers, he can keep the increasing returns segregated from the rest of the model (where one firm would take over if it could), and yet the benefits of technological advancement are allowed to bleed through to other firms that only have constant returns to scale.