AS-AD in the standard dynamic neoclassical model: business cycles and growth trends

Gillman, Max 2012. AS-AD in the standard dynamic neoclassical model: business cycles and growth trends. [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University. Available at: http://business.cardiff.ac.uk/research/working-pap...

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Abstract

The paper shows how a dynamic neoclassical AS-AD can be de- rived and used to describe business cycles and growth trends to under- graduates. Derived within the Ramsey-Cass-Koopmans (RCK) model, the AS-AD is the stationary equilibrium of the deterministic dynamic general equilibrium framework. Allowing Solow exogenous growth, the AS-AD is derived along the balanced growth path equilibrium. The derivation first builds consumption demand, aggregate demand, and then aggregate supply through the equilibrium conditions and a closed form solution for the capital stock. Through a comparative sta- tic change in goods sector productivity, the paper shows the basic fail- ing of the standard RBC model. Allowing a second comparative static change in the consumer's time endowment, this captures a change in the "external margin" of labor supply. These comparative statics en- able explanation of the business cycle, and "Solow-plus" growth trends including education time and working time. In extension of RCK, the paper shows beyond the undergraduate level, how to derive AS-AD when including human capital and endogenous growth. This allows an endogenous change in the time endowment for work and leisure through a change in human capital productivity, with a similar but more fundamental AS-AD story of business cycles and growth trends.

Item Type:	Monograph (Working Paper)
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Uncontrolled Keywords:	Ramsey-Cass-Koopmans, supply, demand, state vari- able
Additional Information:	Cardiff Economics Working Papers E2012/12
Publisher:	Cardiff University
Date of First Compliant Deposit:	30 March 2016
Last Modified:	19 Mar 2016 22:58
URI:	https://orca.cardiff.ac.uk/id/eprint/33731

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