Inspecting the Mechanism: An Analytical Approach to the Stochastic Growth Model / John Y. Campbell.

Format:

Book

Author/Creator:

Campbell, John Y.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4188.

NBER working paper series no. w4188

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Inspecting the Mechanism

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1992.

Summary:

This paper argues that a clear understanding of the stochastic growth model can best be achieved by working out an approximate analytical solution. The proposed solution method replaces the true budget constraints and Euler equations of economic agents with loglinear approximations. The model then becomes a system of loglinear expectational difference equations, which can be solved by the method of undetermined coefficients. The paper uses this technique to study shocks to technology and government consumption. It emphasizes that the persistence of shocks is an important determinant of their macroeconomic effects.

Notes:

Print version record

October 1992.