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Solow Model. Calibrated to a SAM for 1950 Usual assumptions Written in Excel for transparency (instead of GAMS) Interpretation and changes are straightforward Produces a counterfactual. Structuralist Model. Calibrated to the same SAM Uses capacity generated by Solow model.

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solow model
Solow Model
  • Calibrated to a SAM for 1950
  • Usual assumptions
  • Written in Excel for transparency (instead of GAMS)
  • Interpretation and changes are straightforward
  • Produces a counterfactual
structuralist model
Structuralist Model
  • Calibrated to the same SAM
  • Uses capacity generated by Solow model
investment function
Investment function
  • u: capacity utilization u = X/Q
  • X: aggregate demand
  • Expected rate of profit relative to the cost of capital
expected profit rate
Expected profit rate

Last period’s profit rate plus a random error term (uniform distribution)

rt = rt-1+ ε

aggregate demand
Aggregate Demand
  • X = X(u; ρ*,ρ)+εwhere
  • ρ∗ foreign savings
  • ρ govt investment less govt savings
  • ρ* and ρ are “shocks” (in terms of % of GDP)
  • Supply determined by Solow model
labor market
Labor Market
  • Supply: exogenous growth rate
  • Demand: follows productivity and real wages
  • Walrasian adjustment with lag
the shocks
The Shocks

Two ways to model them

  • Historical trend (average rate of growth)
  • Actual data (year by year)
conclusion
Conclusion
  • Fiscal policy stabilizing until late 1980s- 1990s.
  • Se vayan todos: classic government failure ∙
  • Argentina and Washington Consensus
households
Households
  • 75 households (1950) to 234 households (2000)
  • Two labor categories: Skilled and unskilled
to enter the skilled labor market
To enter the skilled labor market
  • Requires “skill” obtained through
  • Education or previous experience
  • Luck
points system
Points system
  • All labor contracts are renegotiated each period
  • Education one point
  • Experience Lt = 1+(1/Lt-1)
  • Recent experience (last period)
  • Luck (according to a random variable)
simulation design
Simulation Design
  • Excess supply of skilled labor
  • Some skilled labor bias built into the model
  • A worker without skill can at best equal a worker with skill (never preferred).
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