Neoclassical Growth Theory: From Swan to now

*Please note the venue for this event has moved*

Trevor Swan Distinguished Lecture in Economics

The aggregate production function in Swan’s growth model is the cornerstone of quantitative, dynamic aggregate economic theory. His growth model was developed to study secular growth and proved invaluable in this regard. In addition, it is a theory of the income side of the national income and product accounts. His model is not a theory of aggregate fluctuations, which requires endogenizing the investment-savings and labor-leisure decisions. What was needed to endogenize these decisions was an aggregate household as well as an aggregate production function. Kydland and Prescott introduced an aggregate household into the growth model and use it to quantitatively determine the implications of growth theory for business cycle fluctuations. With this addition, neoclassical growth theory came into existence. Extensions of this theory have proven successful in the study of stock markets, asset returns, growth miracles, prosperities and depressions, predicting the aggregate consequences of alternative tax policies, accounting for differences in aggregate labor supply across countries and time, economic development, and international economics as well as business cycles and secular growth. Deviations from the predictions of this theory are puzzles to be resolved and their resolutions have advanced neoclassical growth theory.

Edward C. Prescott is Professor of Economics at Arizona State University and is the W. P. Carey Chair in Economics in the W. P. Carey School of Business. He has previously held faculty positions at the University of Pennsylvania, Carnegie Mellon University, the University of Minnesota, and The University of Chicago. He is a Senior Monetary Analyst at the Minneapolis Federal Reserve Bank. He received his B.A. in mathematics from Swarthmore College in 1962, his M.S in Operations Research from Case-Reserve University in 1963, and his Ph.D. in economics from Carnegie Mellon University in 1967. He is an aggregate economist theorist who develops and applies dynamic economic theory to problems in financial economics, economic fluctuations, public finance, growth and development, and international economics areas. He and Finn Kydland were jointly awarded the 2004 Nobel Prize in Economics "for their contributions to dynamic macroeconomics: the time consistency of economic policy and the driving forces behind business cycles.”acroeconomics: the time consistency of economic policy and the driving forces behind business cycles.”

Light refreshments served after the talk. Please RSVP here for catering purposes.

Presented by the Research School of Economics, ANU College of Business and Economics.