TY - JOUR
AU - Campbell,John Y.
TI - Inspecting the Mechanism: An Analytical Approach to the Stochastic Growth Model
JF - National Bureau of Economic Research Working Paper Series
VL - No. 4188
PY - 1992
Y2 - October 1992
DO - 10.3386/w4188
UR - http://www.nber.org/papers/w4188
L1 - http://www.nber.org/papers/w4188.pdf
N1 - Author contact info:
John Y. Campbell
Morton L. and Carole S.
Olshan Professor of Economics
Department of Economics
Harvard University
Littauer Center 213
Cambridge, MA 02138
Tel: 617/496-6448
Fax: 617/495-7730
E-Mail: john_campbell@harvard.edu
AB - 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.
ER -