Andreas Pollak @ U of S

Work in Progress

	Investment and Economic Growth The parameters used to calibrate the neoclassical growth model – the capital share, depreciation rate, and productivity growth – have remained remarkably stable for over a century. They are conventionally interpreted as exogenous technological givens. Even endogenous growth theories typically derive the growth rate from assumed production function properties combined with other factors. This paper shows that these patterns and characteristics of the production sector are not features of an arbitrary production technology. Instead, they are so stable and robust because they are the necessary outcomes of optimal firm behaviour under competition. I develop a generalized model of a competitive firm sector, free from specific functional form assumptions, to determine the value of productive capital as an investable asset. The optimal choices of firms developing and selling capital goods then pin down the factor shares and the rate of productivity growth as functions of the interest rate and employment growth. Further statistics of interest can be derived from those variables, including the capital-output ratio and the depreciation rate. While the model permits ranges of possible values for the factor shares, with the exact values depending on upgradability of capital goods, there is only one steady-state growth rate that is compatible with a given interest rate. Quantitatively, the model predictions align remarkably closely with empirical data: for an interest rate of 4% and a stationary population, predicted labour productivity growth is 2%, the labour share is (1-⍺)∊[½,69.4%], and the depreciation rate is δ∊[4%,6.5%]. The upper ends of these ranges correspond to the plausible case of putty-clay investment. This framework offers multiple contributions: It is a growth model that features balanced growth at a specific, endogenously determined rate. It provides a production sector model that endogenizes several important parameters rather than assuming their values. And finally, it represents a new theory of income distribution, predicting factor shares as a function of the interest rate, employment growth and the distribution of technology vintages in use. This provides a novel lens through which to analyze the widely debated shifts in factor shares that have been observed in recent decades.
	Aggregate Production in Macroeconomic Theory; Or: The Curious Case of the Missing Equation - A Macro Mystery This paper argues that, for a firm sector to have the expected property of aggregate scale invariance while being consistent with our experience regarding economic growth, it requires a micro structure that endogenously determines the number of production units in a scale-invariant way. A simple and standard free-entry, competitive-market model meets this requirement, while offering several additional benefits compared to the firm sector models most commonly used in the macroeconomic literature. To demonstrate the advantages of the proposed approach, I present two example applications. The first one develops a production sector that exhibits stable productivity growth resulting from firms' endogenous R&D investment. While only containing standard building blocks, the model structure is entirely new to the growth literature and offers a number of desirable features. It is the first R&D-based growth model inherently free of any unwanted scale effects or knife-edge conditions, while being far less complicated than most popular frameworks of endogenous growth. It does not rely on a linearity of production in an accumulable factor and retains the empirically well-supported medium-term capital dynamics associated with the neoclassical growth model. As the second example, the proposed firm-sector structure is integrated into an otherwise standard two-sided labour market search framework. The resulting model is again simpler than the comparable Mortensen-Pissarides model, replaces the Nash-bargaining approach to wage determination not commonly used in other macro settings with standard marginal-product wages, and is easily calibrated to match empirical volatility patterns of labour market variables. More generally, the paper shows that the notion that certain features of economies, such as R&D-driven growth or search unemployment, are inherently incompatible with a competitive setting, is not correct. A free-entry, competitive market setting can accommodate such model characteristics without the need for mark-ups, rents, market power or domain-specific modelling strategies such as scale effects in aggregate production or linearity in an accumulable factor.
	A Unified Theory of Growth, Cycles and Unemployment; Part I: Technology, Competition and Growth Part I of this paper proposes a model of endogenous growth, in which the scale of individual production units is endogenously determined in a novel way. The basic model has desirable growth and static properties, including the following: (1) The economy exhibits productivity growth at a constant rate that only depends on technology parameters; (2) at the aggregate level, the economy is identical to the neoclassical growth model, thus (3) featuring the full medium-term capital dynamics familiar from this framework; moreover, (4) the model explains why the aggregate production function and many industries exhibit constant returns to scale; (5) there are no unrealistic constraints on the firm-level production technology; in particular, production is not linear in a capital-like input and (6) the notion that R&D investments become less effective with rising technology levels is accounted for; (7) generally, there are no knife-edge conditions or implausible scale effects; (8) no particular assumptions regarding market power or the competitive structure of industries are required; markets can be modelled as perfectly competitive, but the framework is robust to alternative assumptions such as monopolistic competition; (9) being based on the quality-ladder idea, the model can be extended to feature the rich industry-level dynamics that have been studied using Schumpeterian growth models; (10) in its basic version, the model is far simpler while being more general than popular models of endogenous growth.
	A Unified Theory of Growth, Cycles and Unemployment; Part II: Business Cycles and Unemployment The growth framework presented in part I of this paper is extended to include labour market frictions, resulting in a model that has interesting cyclical properties, including the following: (1) In response to investment-reducing shocks, the model endogenously creates recessions followed by drawn-out recoveries, closely resembling time series data on unemployment, output, investment and asset prices; (2) recessions are fully explained as periods during which frictions prevent instantaneous reallocation, resulting in (3) stock market crashes at the beginning of recessions; (4) the persistently elevated unemployment following recessions is explained as a result of investment dynamics; (5) the model incorporates a mechanism that strongly amplifies investment-reducing shocks while dampening investment-increasing shocks; this leads to (6) a pronounced asymmetry in business cycles, even for symmetric shocks; (7) the model further explains why output can be above trend during investment booms; (8) cyclical fluctuations can be triggered by a variety of shocks, including for example productivity or financial shocks; (9) the model is capable of expectation-driven cycles: the anticipation of future changes can trigger investment booms or recessions without the need for any contemporary productivity changes; (10) the shape of recessions and recoveries is largely driven by model mechanics, and does not rely on particular characteristics of the shock; (11) the model matches the usual cyclical correlations as well as typical RBC models, and in addition to that replicates the skewness of cyclical variables; (12) the model is simpler than most alternative business cycle frameworks and more robust with regards to its reliance on household characteristics for cyclical patterns.
	Unemployment Insurance Differentiation over the Business Cycle This paper quantitatively investigates the welfare implications of varying unemployment insurance (UI) generosity with labour market conditions, in particular over the business cycle. Using a life-cycle model with two-sided matching in the labour market, which is calibrated to match the Canadian economy, I conduct policy experiments that qualitatively confirm results from the theoretical literature that differentiation of UI generosity over the business cycle improves welfare by providing better insurance in times when labour market conditions are difficult. However, I show that quantitatively, the welfare improvements possible though optimal benefit differentiation are very small for UI systems that are reasonably efficient to start with.
	A Note on the Measurement of Real GDP I show that the standard formula for computing real GDP may imply a bias in measured real GDP growth for certain patterns in the co-movement of individual prices and quantities. If high prices typically coincide with a change in quantity in one direction, whereas low prices regularly occur when quantities move in the opposite direction, GDP growth is systematically mismeasured, i.e. high-frequency disturbances in price and quantity variables affect the long-term measure of output growth. This effect applies to any chain-weighted quantity indexes measured analogously to real GDP.

Publications in Refereed Journals

	Employment Insurance: Interregional Redistribution versus Protection against Changing Labour Market Conditions, Canadian Public Policy, September 2019.

	Rising R&D Intensity and Economic Growth, Economic Inquiry, Volume 52, Issue 4, October 2014, 1427-1445.

	Unemployment, Human Capital Depreciation, and Unemployment Insurance Policy, Journal of Applied Econometrics, Volume 28, Issue 5, August 2013, 840-863.

	Growth and Convergence when Technology and Human Capital are Complements, Economic Inquiry, Volume 51, Issue 1, January 2013, 31-45.

	Efficient Unemployment Insurance and the Cost of Borrowing, Economics Letters, Volume 116, Issue 2, August 2012, 136-138.

	Optimal Unemployment Insurance with Variable Skill Levels, Journal of Institutional and Theoretical Economics, Volume 164, Number 4, November 2008, 696-726.

	Optimal Unemployment Insurance with Heterogeneous Agents, European Economic Review, Volume 51, Issue 8, November 2007, 2029-2053.

Office hours: by appointment

Further course-related materials are available on Canvas.

2025/26, Term 1

ECON 111.3
Introductory Microeconomics

time: TR 8:30-9:50 (section 05), TR 10:00-11:20 (section 01)
room: Arts 143

course outline

ECON 801.3
Macro Economic Theory

time: TR, 13:00-14:22
room: Education 3101

course outline

2025/26, Term 2

ECON 411.3
Monetary Theory

time: MW 10:00-11:20
room: THORV 128

course outline

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Current course outlines

This is a list of all courses I currently teach with the most recent version of the course outline and grade statistics. Starting in winter 2025, I have been collecting and publishing information on cheating in my courses. In total, 4 students have been caught and sanctioned, which is 5%.

ECON 111.3: Introductory Microeconomics	last taught: 2025/26, T1	course outline
ECON 211.3: Intermediate Microeconomics	last taught: 2020/21, T1	course outline
ECON 214.3: Intermediate Macroeconomics	last taught: 2024/25, T2	course outline	grades	cheating: 3.7%
ECON 274.3: Intermediate Macroeconomic Theory	last taught: 2024/25, T2	course outline	grades	cheating: 0%
ECON 350.3: Economics of Public Expenditures	last taught: 2024/25, T1	course outline	grades
ECON 374.3: Topics in Intermediate Macroeconomic Theory	last taught: 2023/24, T1	course outline	grades
ECON 411.3: Monetary Theory	last taught: 2025/26, T2	course outline	grades
ECON 473.3: Mathematical Introduction to Micro Theory includes: ECON 498.3: Contract Theory	last taught: 2024/25, T2	course outline	grades	cheating: 8.3%
ECON 801.3: Macroeconomic Theory	last taught: 2025/26, T1	course outline	grades
ECON 873.3: Advanced Microeconomic Theory ("Micro II") includes: ECON 898.3: Contract Theory	last taught: 2024/25, T2	course outline	grades	cheating: 12.5%

ECON 214.3: Statistics are for the past 8 section(s).

40-49		6.8%
50-59		20%
60-69		24.7%
70-79		18%
80-89		19%
90-99		11.2%
100		0.3%

average: 69.9

median: 69