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June 30, 2005

Kudos to Ryan Nunn of the Brookings Institution

Kudos to Ryan Nunn of the Brookings Institution. He has saved us from an embarrassing (and substantive) mindo in "Asset Returns and Economic Growth."

Because I forgot in the Diamond model to adjust the capital stock per capita for population growth, I wrote down the wrong equation (21):

where I should have written:

And this error propagated to give the wrong expression for the real interest rate along the economy's steady-state growth path:

which should have been:

and this led us to the erroneous conclusion that in the Diamond model slowdowns in population growth have smaller effects on asset returns than do slowdowns in labor productivity growth, while in fact the effects are equal.

We are very grateful to Ryan for his sharp eyes...

Posted by DeLong at June 30, 2005 11:39 AM