Thursday, August 28, 2008

Crazy things I told my class today

"Macroeconomists aren't very bright. It took us almost 40 years to realize the Solow model was about income differences rather than growth rate differences and almost the same amount of time to realize that the lack of absolute convergence was not evidence against the model."

Agree? Disagree? Think I should have my tenure stripped and be put out on the street?


Anonymous said...

So does the model have a testable hypothesis?

Angus said...

Mankiw Romer & Weil (qje 1992) developed a nested hypothesis test for the Solow model. In the cross-section, they failed to reject the restrictions implied by the augmented (to include human capital) model. However, in panels, both Islam (qje 1995) and Caselli, Esquivel and Leffort (journal of ecnomic growth) reject the restrictions implied by the Solow model.