Year: 1998
Type: article
Abstract: AK growth models predict that permanent changes in government policies affecting investment rates should lead to permanent changes in a country?s GDP growth. Charles Jones (1995) sees no evidence for this prediction in data for 15 OECD countries after World War II: rates of investment, especially for equipment, have risen while GDP growth rates have not. This article provides evidence supporting the AK models? prediction. Data back to the 19th century show a strong positive relationship between investment rates and growth rates and short-lived deviations from trends. A strong positive relationship also exists between average rates of investment and growth in postwar data for a large cross-section of countries. To account for the short-run deviations in rates that Jones highlights, the model he used is extended to allow policies to affect not only investment/output ratios but also capital/output ratios and labor/leisure decisions.
Source: Quarterly Review
DOI: 10.21034/qr.2242
Author: Ellen R. McGrattan
Institutions: University of Minnesota, Federal Reserve Bank of Minneapolis
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W1586169191