1. Klaus Wälde * Department of Economics * University of Würzburg * www.waelde.com 1. How it fits into the literature Natural volatility in growing economies ________________________________________________________________ growth theories exogenous explanation Solow okay! endogenous explanation Romer Lucas Aghion Howitt Grossman Helpman fluctuations RBC, sunspots okay! growth and fluctuations endogenous explanation Bental and Peled Matsuyama Wälde Francois and Lloyd-Ellis aha?!? press ‘enter‘ when ready Ready to start? Press ‘enter‘

2. 2. Why do growing economies fluctuate? (see e.g. Bental und Peled 1996, Matsuyama 1999, Wälde 1999, 2002, 2005 Francois and Lloyd-Ellis 2003) Klaus Wälde * Department of Economics * University of Würzburg * www.waelde.com Natural volatility in growing economies ________________________________________________________________ TFP grows in discrete steps rather than smoothly! Growth models with exogenous or endogenous growth: TFP growth is smooth Natural volatility: TFP growth turns out to follow a step function press ‘enter‘ when ready

3. 3. A Model (Posch and Wälde, 2005)   Klaus Wälde * Department of Economics * University of Würzburg * www.waelde.com Natural volatility in growing economies ________________________________________________________________ press ‘enter‘ when ready press (last time) ‘enter‘ when ready Fig. 1a: Cyclical component Fig. 1b: Corresponding level of GDP

4.   Klaus Wälde * Department of Economics * University of Würzburg * www.waelde.com Natural volatility in growing economies ________________________________________________________________ Want more details? See the survey and more references in: http://www.wifak.uni-wuerzburg.de/vwl2/nv/NaturalVolatility.pdf Thank you for your attention!