# 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
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:
ln(
Yt+1/Nt+1
Yt/Nt
) = 1
1 – a
[ln(At+1) – ln(At)]
+
a
1 – a
[ln(
kt+1
yt+1
) – ln(
kt
yt
)]
+ ln(Lt+1/Nt+1) – ln(Lt/Nt)
Create a bar graph showing the contribution of each component to GDP growth by
1
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
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?