3. Solow Model Calibrated to a SAM for 1950 Usual assumptions Written in Excel for transparency (instead of GAMS) Interpretation and changes are straightforward Produces a counterfactual

5. Structuralist Model Calibrated to the same SAM Uses capacity generated by Solow model

6. Investment function 1.u: capacity utilization u = X/Q 2.X: aggregate demand 3.Expected rate of profit relative to the cost of capital

7. Expected profit rate Last period’s profit rate plus a random error term (uniform distribution) r t = r t-1 + ε

8. X = X(u; ρ*,ρ)+ ε where ρ ∗ foreign savings ρ govt investment less govt savings ρ* and ρ are “shocks” (in terms of % of GDP) Supply determined by Solow model Aggregate Demand

9. Labor Market Supply: exogenous growth rate Demand: follows productivity and real wages Walrasian adjustment with lag

10. The Shocks Two ways to model them 1.Historical trend (average rate of growth) 2.Actual data (year by year)

11. Trend shocks

12. Actual Foreign (trend fiscal)

13. Actual Fiscal and Foreign

14. Conclusion Fiscal policy stabilizing until late 1980s- 1990s. Se vayan todos: classic government failure ∙ Argentina and Washington Consensus

15. Households 75 households (1950) to 234 households (2000) Two labor categories: Skilled and unskilled

16. To enter the skilled labor market Requires “skill” obtained through Education or previous experience Luck

17. Points system All labor contracts are renegotiated each period Education one point ExperienceL t = 1+(1/L t-1 ) Recent experience (last period) Luck (according to a random variable)

18. Household Decision Rules

19. Employer’s Decision

20. Simulation Design Excess supply of skilled labor Some skilled labor bias built into the model A worker without skill can at best equal a worker with skill (never preferred).

22. Trend shocks with HH block

24. Trend Fiscal Actual Foreign

39. Income Distribution