Introduction

This is a book on Growth Theory and on the numerical methods needed to fully characterize the properties of most Growth models. In this introductory chapter, we describe the main characteristics of different families of Growth models and their relevance for policy analysis, which is moving leading economic and financial institutions throughout the world to increasingly rely on their use for forecasting as well as for policy evaluation. In particular, we emphasize how the richer structure provided to Growth models by their Microeconomic foundations allows us to address a much broader set of policy issues than in more traditional structural dynamic models. The book gradually builds on by increasing the degree of generality of the models being considered, as explained below. We cover: (a) neoclassical growth under a constant savings rate, (b) optimal growth, (c) numerical solution methods, (d) endogenous growth, and (e) monetary growth. Theoretical discussions on each model are presented, with special attention to characterizing the properties of equilibrium solutions and their use for fiscal policy considerations, while a specific chapter deals with monetary policy issues. Algorithms to solve all models considered are presented, together with EXCEL spreadsheets and MATLAB programs that implement them. Results obtained by these programs are commented in “Numerical exercise”- type sections, where some indications are provided on possible modifications of the enclosed programs. The book has been written with the intention that it may be accessible to students without an initial background on Growth Theory or mathematical software. Maintaining the same notation used in the analytical presentations in the book should allow the reader to follow easily the structure of the programs and quickly learn how to adapt them to alternative specifications or theoretical assumptions.