ECON 390 – Quantitative Analysis of the Macroeconomy Amanda M Michaud

ECON 390 – Quantitative Analysis of the Macroeconomy Amanda M Michaud
Problem Set #4: Compute Growth Facts for your Country
Due February 15 at 9am
1 Objective
Calculate growth facts for your country. This will help you learn something about how your
economy functions. These will also be the facts you will calibrate your model economy to.
2 Method
1. Gather your data from Problem Set 3 and read them into Matlab.
2. Calibrate the model. Compute a (capital share) and d (depreciation) following the formulae
in the notes, if possible. Otherwise, set d = 0.10 and a = 0.3.
3. Construct a time-series of capital stocks by the perpetual inventory method.
4. Draw the following four time-series plots related to Kaldor’s facts. (Choose scales, number
of plots, labels, titles, etc. such that these plots are easily read and understood.)
• Output per worker
• Capital per worker
• Capital to output ratio
• Real payments to labor
5. Growth Accounting:
• Calculate the series for At (Solow residual-See lecture notes)
• Plot At
, Kt/Yt and ht
, normalizing each to one in the first year of your sample. (ie:
divide every entry in each time series by the first value in that series.)
• Decompose growth of GDP per working age person using the equation derived in
lecture notes:
) = 1
1 – a
[ln(At+1) – ln(At)]
1 – a
) – ln(
+ ln(Lt+1/Nt+1) – ln(Lt/Nt)
Create a bar graph showing the contribution of each component to GDP growth by
ECON 390 – Quantitative Analysis of the Macroeconomy Amanda M Michaud
3 Product
Attach your script and a .pdf or word document that includes all of your graphs and brief, yet
thoughtful, answers to the following questions (You can edit the file I post with your answers
and graphs, that’s fine.):
• What are Kaldor’s facts? Why are they important for helping macroeconomists build
better models?
• Does your country exhibit the same stylized facts documented by Kaldor? If not, speculate
on why. Is it some mis-measurement in the data (ie: labor is not really well represented
by working age population)? Or is the economy just fundamentally different than that of
the US? How so?
• Describe in words what Growth Accounting is. Explain the interpretation of the Solow
Residual and how it relates to our model construct: TFP.
• Summarize your findings for the contribution of each component- TFP growth, CapitalOutput
ratio growth, hours per working age person growth- to the growth of GDP per
working age person. Does the contribution of each factor change over different time
periods? Is one factor always important? Unimportant? How do you interpret this?
You may have to do some small research about your country to inform your answers.
Wikipedia is fine, but make sure you are building some expert knowledge that you can convey
in your policy report later on.

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