Solow

Try to build a simple Excel simulation of our growth model, streamlined. We can embed it in a full production function, but just use the following for simplicity:

  1. Y0 = AK0α – output is a function of capital
  2. I0 = S0 = sY0 – investment is equal to savings
  3. K1 = K0 (1-δ) + I0 – capital grows with investment less depreciation

You can then calculate Y1, and create a bunch of rows. How fast does it converge? It’s clearer if you set (say) A = 10, with (say) K0=1 and depreciation not too much higher than savings so that the capital stock grows rather than shrinks, say s=8% and δ=12%. What you choose for α alpha doesn’t really matter, so say 0.33. [A=10 helps keep initial savings greater than initial depreciation so that the capital stock grows]

Of course you gain the ability to tweak it if you add in L labor with a growth rate (1+gl) relative to the previous period (row!). Ditto letting TFP “A” growth at (1+ga). You can start with these set to zero, but then let labor grow. But if you add L, you want to focus on Y/L not total output Y.

Germane comments welcome! – others treated as spam.