Production, Growth And Business Cycles By Robert G. King, Charles I. Plosser and Sergio T. Rebelo Presented By Erik Grothman, John Hudson and Nate Drunasky

Introduction Neoclassical Model First Order Conditions Approximation Method Calibration Table Dynamics with Graphs

Neoclassical Model Preferences – β = Discount Rate – C = Consumption – L = Leisure Production Possibilities – K = Capital Stock – N = Labor input – X = Technological Variations – A = Changes in Total Productivity

Continued… Capital Accumulation – I = Gross Investment – = Rate of Depreciation of Capital Resource Constraints – Total time allocated to work and leisure must not exceed the endowment – Total uses of the commodity must not exceed output

Optimization Problem Lagrangian Theorem – Y-C-I – Y= GDP, C= Consumption, and I= Investments

First Order Conditions

Approximation Method Approximation of the intertemporal efficiency condition implies that: – = Shadow Price – = Technology Shifts

Approximation Method

Linearize Equations Since you cannot derive the previous equations they try to linearize the lines by using the equations below

Calibration Model

Dynamics