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Seminar in Econ

by: Leopoldo Ritchie DDS

Seminar in Econ ECON 495

Leopoldo Ritchie DDS
GPA 3.99

Kathryn Dominguez

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Kathryn Dominguez
Class Notes
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This 20 page Class Notes was uploaded by Leopoldo Ritchie DDS on Thursday October 29, 2015. The Class Notes belongs to ECON 495 at University of Michigan taught by Kathryn Dominguez in Fall. Since its upload, it has received 8 views. For similar materials see /class/231654/econ-495-university-of-michigan in Economcs at University of Michigan.


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Date Created: 10/29/15
Econ 495 Research Strategies Economic Research El Economic research typically involves examining a topic or question in the context of a specific theory or hypothesis and then I if the research is empirical testing the theory I If the research is theoretical providing a mathematical framework Kathryn M E Dominguez Fall 2007 Examples of economic theories I In microeconomics examples include I Supply and demand I Production and cost I Theories of the firm I Consumer behavior a In macroeconomics examples include I Aggregate demand and supply I Consumption expenditure I Investment demand I Money demand Kathryn M E Dominguez Fall 2007 More examples of economic theory i A number of economic issues involve information asymmetries El Two theoretical concepts that allow us to think about how these asymmetries may influence incentives are I Moral Hazard u The classic example is in the insurance industry where coverage against a loss might increase the risk taking behavior of the insured I Adverse Selection in Often referred to as the lemons problem which arises over the inability of buyers to ascertain quality Kathryn M E Dominguez Fall 2007 Comparative Advantage a Nobel laureate Paul Samuelson was once challenged by the mathematician Stanislaw Ulam to quotname me one proposition in all of the social sciences which is both true and nontrivialquot n It was several years later than he thought of the correct response comparative advantage I quotThat it is logically true need not be argued before a mathematician that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to themquot Kathryn M E Dominguez Fall 2007 Models of Growth I Help us understand how standards of living evolve over time in different countries I Exogenous growth models the Solow growth model is a classic example start with the key assumption that capital is subject to diminishing returns a Endogenous growth models relax this assumption and focus on the role of technological progress Kathryn M E Dominguez Fall 2007 An increase in the saving rate An increase in the saving rate raises investment causing k to grow toward a new steady state Investment and 8k depreciation A 52 1719 I l s fk Kathryn M E Dominguez Fall 2 1 Solow Model Prediction nHighers gt higher k I And since y fk higher k gt higher y n Thus the Solow model predicts that countries with higher rates of saving and investment will have higher levels of capital and income per worker in the long run Kathryn M E Dominguez Fall 2007 International evidence on investment rates and income per person Income per 39UU UUU person in 2000 log scale 10000 1000 10 15 20 25 30 Investment as percentage of output average 19602002 100 35 Kathryn M E Dominguez Fall 2007 The impact of population growth Investment breakeven investment An increase in n causes an increase in break even investment leading to a lower steadystate level of k Kathryn M E Dominguez Fall 2007 111 6n2 k 6n1 k sfk 11 worker k 10 Prediction 1 Higher n gt lower k El And since y fk lower k gt lower y El Thus the Solow model predicts that countries with higher population growth rates will have lower levels of capital and income per worker in the long run Kathryn M E Dominguez Fall 2007 11 International evidence on population growth and income per person Income 100000 per Person in 2000 lo scale g 10000 r 1000 100 0 1 2 3 4 5 Population Growth ercgpgpier year average 196020019 Kathryn M E Domlpguez Alternative perspectives on population growth The Kremerian Model 1993 I Posits that population growth contributes to economic growth I More people more geniuses scientists amp engineers so faster technological progress I Evidence from very long historical periods a As world pop growth rate increased so did rate of growth in living standards a Historically regions with larger populations have enjoyed faster growth Kathryn M E Dominguez Fall 2007 13 How do you apply economic theory or thinking to an issue El Three questions you need to answer 1 What are the essential concepts involved in the problem being researched 2 How are the essential concepts related 3 What implications or predictions can be drawn from these relationships Kathryn M E Dominguez Fall 2007 14 An example of how to go from a topic to a research strategy D Sample topic Is the US Macroeconomic slowdown caused by the decline in the stock market I What are the major concepts involved 1 Economic slowdown u Decline in the stock market I What theories might connect the two concepts 1 Consumer spending 1 Investment demand Kathryn M E Dominguez Fall 2007 15 Connecting a macroeconomic slowdown with a decline in the stock market n Weaving a story I A decline in the stock market makes individuals feel less wealthy and may cause a decrease in consumer spending I Reduced consumer spending leads to less demand for business output and therefore business investment I At the same time a declining stock market makes it more difficult for businesses to raise capital also potentially reducing investment I Y CIG if Cquot and I decline due to the decline in the stock market then assuming G does not rise to offset these declines Y will fall Kathryn M E Dominguez Fall 2007 16 Narrative and Mathematical Reasoning El Both these approaches start with a hypothesis and reason through the economic logic either I in words the narrative approach a Keynes General Theory is a classic example of this approach I with mathematical equations a Most academic economic research currently involves mathematical modeling Kathryn M E Dominguez Fall 2007 17 Common shortcut Modifying an Existing Model n Idea here is to customize a more general economic model to the particular question you are interested in I In some cases this will involve simply re defining variables and in other cases it will involve adding additional variables or components to a standard model I In these instances it is very important to make clear what contribution you are making realizing that a model set up for a different question is relevant is a contribution and to whom credit should go for the original formulation Kathryn M E Dominguez Fall 2007 18 Elements of a good research hypothesis 1 You should be able to state it clearly and specifically 2 It should be possible to discriminate it clearly from alternative hypotheses 3 It should be capable of being proven false 4 It should be empirically testable 5 It should be derived from a theoretical analysis Kathryn M E Dominguez Fall 2007 19 Some additional readings on research design n Rowan Hooper Hapginess is the Best Medicine Wired News April 1 2005 l Interesting article summarizes research on the relationship between health and happiness including a good discussion of the pitfalls of direction of causation possibly going both directions El Daniel S Hamermesh Doing Applied Economics Normative and Positive Aspects Chapter 8 in Stephen G Medema and Warren J Samuels Eds Foundations of Research in Economics How Do Economists Do Economics Edward Elgar Northampton MA 1996 l Excellent reflection on what makes for a good empirical research design Kathryn M E Dominguez Fall 2007 20


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