Wealth Breeds Decline: Reversals of Leadership and Consumption Habits

In a two-region model, we formalize Kindlebergers idea that wealth breeds first more wealth, and then decline: when one region leads, its inhabitants develop consumption habits incompatible with the necessary investment in knowledge to remain the leader. This gives the other region a window of opportunity to gain economic primacy. The theory suggests that differences across regions that have similar characteristics may persist even if physical capital flows from rich to poor regions. We study patterns of overtaking, alternating primacy, irreversible decline, and monotonic convergence, according to the initial dispersion of knowledge and the strength of consumption habits. Even though exogenous factors may matter on some occasions, we show that they are not necessary to reverse economic leadership.     

Population dynamics and utilitarian criteria in the Lucas–Uzawa Model

This paper introduces population growth in the Uzawa–Lucas model, analyzing the implications of the choice of the welfare criterion on the model's outcome. Traditional growth theory assumes population growth to be exponential, but this is not a realistic assumption (see Brida and Accinelli, 2007). We model exogenous population change by a generic function of population size. We show that a unique non-trivial equilibrium exists and the economy converges towards it along a saddle path, independently of population dynamics. What is affected by the type of population dynamics is the dimension of the stable manifold, which can be one or two, and when the equilibrium is reached, which can happen in finite time or asymptotically. Moreover, we show that the choice of the utilitarian criterion will be irrelevant on the equilibrium of the model, if the steady state growth rate of population is null, as in the case of logistic population growth. Then, we show that a closed-form solution for the transitional dynamics of the economy (both in the case population dynamics is deterministic and stochastic) can be found for a certain parameter restriction.     

Phases of economic development and the transitional dynamics of an innovation-education growth model

This paper extends earlier analysis of the transitional dynamics of a growth model in which both human capital and innovation drive income expansion. Funke and Strulik [2000. On endogenous growth with physical capital, human capital and product variety. European Economic Review 44, 491-515] suggest that the typical advanced economy follows three development phases, characterized in a temporal order by physical capital accumulation, human capital formation, and innovation, and that the transitional dynamics of the model reproduce such a sequencing. I argue that other sequences of the phases of development are possible and show that the model can generate a trajectory in which innovation precedes human capital formation. This trajectory accords with the observation that the rise in formal education followed with a considerable lag the process of industrialization. U.S. income and educational time series data are used to corroborate the innovation-education trajectory.     

Incomplete information,higher-order beliefs and price inertia

The question that motivates this paper is how incomplete information impacts the response of prices to nominal shocks. Our baseline model is a variant of the Calvo model in which firms observe the underlying nominal shocks with noise. In this model, the response of prices is pinned down by three parameters: the precision of available information about the nominal shock, the frequency of price adjustment, and the degree of strategic complementarity in pricing decisions. This result synthesizes the broader lessons of the pertinent literature. However, this synthesis provides only a partial view of the role of incomplete information. Once one allows for more general information structures than those used in previous work, one cannot quantify the degree of price inertia without data on the dynamics of higher-order beliefs, or of the agents’ forecasts of inflation. We highlight this with three extensions of our baseline model, all of which break the tight connection between the precision of information and higher-order beliefs featured in previous work.     

Rowing along the computable general equilibrium modelling mainstream

Theoretical, empirical, and technical principles of computable general equilibrium models (CGE models) development have been presented. It is commented how to model the economical processes using this approach. many economists develop the CGE mosels in order to solve the problems of economical forecast. But the resonable criticism of this method is ignored. By analyzing the approaches to CGE models development in the paper it is concluded that the majority of CGE models are not able to describe properly the operation of real economics losing to the method of interindustry forecast. In the recent time the CGE models have been widely used in economics. The presented paper explain why such attractive methods can lose its popularity.