Richard M. H. Suen
Assistant Professor
Department of Economics, Sproul Hall
University of California,
Riverside, CA 92521.
Email: richard.suen@ucr.edu
Phone: (951) 827-1502
Fax: (951) 827-5685
Assistant Professor
Department of Economics, Sproul Hall
University of California,
Riverside, CA 92521.
Email: richard.suen@ucr.edu
Phone: (951) 827-1502
Fax: (951) 827-5685
| Teaching Econ 201C Econ 282G |
Research
Finite State Markov-Chain Approximations to Highly Persistent Processes
with Karen A. Kopecky
Version: November 2009
Revised and resubmitted to Review of Economic Dynamics
Longer version
Abstract: The Rouwenhorst method of approximating stationary AR(1) processes has been
overlooked by much of the literature despite having many desirable properties unmatched by other
methods. In particular, we prove that it can match the conditional and unconditional mean and
variance, and the first-order autocorrelation of any stationary AR(1) process. These properties
make the Rouwenhorst method more reliable than others in approximating highly persistent
processes and generating accurate model solutions. To illustrate this, we compare the performances
of the Rouwenhorst method and four others in solving the stochastic growth model and an income
fluctuation problem. We find that (i) the choice of approximation method can have a large impact on
the computed model solutions, and (ii) the Rouwenhorst method is more robust than others with
respect to variation in the persistence of the process, the number of points used in the discrete
approximation and the procedure used to generate model statistics.
Technological Advance and the Growth in Health Care Spending
Economie D'Avant Garde Research Report No. 13.
Abstract: The second half of the twentieth century recorded a rapid growth in health care spending
and a significant increase in life expectancy. This paper hypothesizes that technological progress in
medical treatment, combined with rising incomes, are the driving forces behind these two trends.
Using a stochastic, multi-period overlapping-generations model as the analytical vehicle, this paper
argues that the rapid growth in medical spending is not driven by factors associated with market
structures or insurance opportunities, but instead by factors underlying the production and
accumulation of health. According to this model, improvements in medical treatment and rising
incomes can explain all of the increase in medical spending and more than 60% of the increase in life
expectancy at age 25 during the second half of the twentieth century.
A Quantitative Analysis of Suburbanization and the Diffusion of the Automobile*
with Karen A. Kopecky
International Economic Review, forthcoming.
Abstract: Suburbanization in the U.S. between 1910 and 1970 was concurrent with the rapid
diffusion of the automobile. A circular city model is developed in order to access quantitatively the
contribution of automobiles and rising incomes to suburbanization. The model incorporates a
number of driving forces of suburbanization and car adoption, including falling automobile prices,
rising real incomes, changing costs of traveling by car and with public transportation, and urban
population growth. According to the model, 60 percent of postwar (1940-1970) suburbanization can
be explained by these factors. Rising real incomes and falling automobile prices are shown to be the
key drivers of suburbanization.
*This paper was previously circulated with the title “Suburbanization and the Automobile.”
Superneutrality, Indeterminacy and Endogenous Growth
with Chong K. Yip
Journal of Macroeconomics, 27 (4), 579-595, 2005.
Abstract: In this paper, we explore the possibility of having money as a source of indeterminacy in
endogenous growth models. We adopt the simple Ak model of endogenous growth to be the main
analytical vehicle whose balanced growth paths do not display local indeterminacy. Money is
introduced via either a general cash-in-advance (CIA) constraint or a pecuniary transaction costs
(PTC) technology. It is shown that local indeterminacy of the dynamics is due to the presence of an
intertemporal substitution effect on capital accumulation that works against and dominates the
conventional inflation effect of Tobin (1965). If money is growth-rate superneutral, then the
intertemporal substitution effect is absent so that local indeterminacy cannot occur. Finally, the
strength of the intertemporal substitution effect depends positively on the intertemporal elasticity of
substitution in consumption.
Finite State Markov-Chain Approximations to Highly Persistent Processes
with Karen A. Kopecky
Version: November 2009
Revised and resubmitted to Review of Economic Dynamics
Longer version
Abstract: The Rouwenhorst method of approximating stationary AR(1) processes has been
overlooked by much of the literature despite having many desirable properties unmatched by other
methods. In particular, we prove that it can match the conditional and unconditional mean and
variance, and the first-order autocorrelation of any stationary AR(1) process. These properties
make the Rouwenhorst method more reliable than others in approximating highly persistent
processes and generating accurate model solutions. To illustrate this, we compare the performances
of the Rouwenhorst method and four others in solving the stochastic growth model and an income
fluctuation problem. We find that (i) the choice of approximation method can have a large impact on
the computed model solutions, and (ii) the Rouwenhorst method is more robust than others with
respect to variation in the persistence of the process, the number of points used in the discrete
approximation and the procedure used to generate model statistics.
Technological Advance and the Growth in Health Care Spending
Economie D'Avant Garde Research Report No. 13.
Abstract: The second half of the twentieth century recorded a rapid growth in health care spending
and a significant increase in life expectancy. This paper hypothesizes that technological progress in
medical treatment, combined with rising incomes, are the driving forces behind these two trends.
Using a stochastic, multi-period overlapping-generations model as the analytical vehicle, this paper
argues that the rapid growth in medical spending is not driven by factors associated with market
structures or insurance opportunities, but instead by factors underlying the production and
accumulation of health. According to this model, improvements in medical treatment and rising
incomes can explain all of the increase in medical spending and more than 60% of the increase in life
expectancy at age 25 during the second half of the twentieth century.
A Quantitative Analysis of Suburbanization and the Diffusion of the Automobile*
with Karen A. Kopecky
International Economic Review, forthcoming.
Abstract: Suburbanization in the U.S. between 1910 and 1970 was concurrent with the rapid
diffusion of the automobile. A circular city model is developed in order to access quantitatively the
contribution of automobiles and rising incomes to suburbanization. The model incorporates a
number of driving forces of suburbanization and car adoption, including falling automobile prices,
rising real incomes, changing costs of traveling by car and with public transportation, and urban
population growth. According to the model, 60 percent of postwar (1940-1970) suburbanization can
be explained by these factors. Rising real incomes and falling automobile prices are shown to be the
key drivers of suburbanization.
*This paper was previously circulated with the title “Suburbanization and the Automobile.”
Superneutrality, Indeterminacy and Endogenous Growth
with Chong K. Yip
Journal of Macroeconomics, 27 (4), 579-595, 2005.
Abstract: In this paper, we explore the possibility of having money as a source of indeterminacy in
endogenous growth models. We adopt the simple Ak model of endogenous growth to be the main
analytical vehicle whose balanced growth paths do not display local indeterminacy. Money is
introduced via either a general cash-in-advance (CIA) constraint or a pecuniary transaction costs
(PTC) technology. It is shown that local indeterminacy of the dynamics is due to the presence of an
intertemporal substitution effect on capital accumulation that works against and dominates the
conventional inflation effect of Tobin (1965). If money is growth-rate superneutral, then the
intertemporal substitution effect is absent so that local indeterminacy cannot occur. Finally, the
strength of the intertemporal substitution effect depends positively on the intertemporal elasticity of
substitution in consumption.
