LAWRENCE ROBERT KLEIN

RUAECO503

NIKITA VIVEK KUMAR(3613-C),

Contact Information
➢ Nikita Vivekkumar: +91 9930840988
[email protected]

➢ Manas Natekar: +91 9767218320

➢ Vihaan Vadnere : +91 9082181539

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 Acknowledgement
We would like to thank and our teacher/mentor for this project Dr.
Devayani Ganpule for not only giving us the opportunity to go
through with this project, but also imparting upon us the
knowledge that we now possess which helped us in the conception
and execution of this project.
Thank You.

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Sr INDEX Page
no. no.

1 Introduction 4

2 Career 5
3 Econometric Modelling from the Perspective of L.R. Klein 6-7

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Introduction
Lawrence Robert Klein, an American economist who developed macro econometric models for
national, regional, and global economies and was awarded the Nobel Prize in Economic Sciences in
1980, was born on September 14, 1920, in Omaha, Nebraska, and died on October 20, 2013, in
Gladwyne, Pennsylvania.
Klein earned a Ph.D. in 1944 after graduating from the University of California, Berkeley, in 1942.
He studied under economist Paul Samuelson at the Massachusetts Institute of Technology. He
worked on econometric research at the University of Chicago from 1944 to 1947, and at the National
Bureau of Economic Research from 1948 to 1950. He worked on econometric research at the
University of Chicago from 1944 to 1947, and at the National Bureau of Economic Research from
1948 to 1950. Following that, he worked at the University of Pennsylvania in 1958 and went on to
become an author and a Professor of Economics and Finance at the Wharton school. Klein was one
amongst the pioneers the development of macroeconomic models.

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Career
One of his earliest achievements was projecting the economic conditions at the end of World War II.
While many economists expected that the end of the war would bring another slump, Klein projected
that the unmet demand for products during the war, along with the purchasing power of returning
soldiers, would likely avert a downturn and he was correct. He went on to the Cowles Commission
for Research in Economics, which was then at the University of Chicago, after receiving his Ph.D.
from MIT. He used Jan Tinbergen’s previous model as a starting point to create a model of the US
economy that he used to anticipate economic circumstances and assess the impact of changes in
government spending, taxation, and other policies. The prevailing thinking in 1946 was that the end
of World War II would plunge the economy into a short-term slump. Klein utilised his approach to
challenge accepted wisdom. Klein was right. Later, he was accurate in predicting that the conclusion
of Korean War would only result in a little slump. Klein transferred to the University of Michigan,
where he developed larger and more complex models of the American economy. That’s when he
created the Klein-Goldberger model with then-graduate student Arthur Goldberger. Klein moved to
Oxford University in 1954 after being denied tenure because he was a member of the Communist
Party from 1946 to 1947. He created a model of the British economy there.
His research resulted in a series of increasingly detailed and sophisticated economic activity models
that were used to forecast fluctuations in national product, exports, investments, and consumption, as
well as to investigate the impact of changes in taxation, government spending and oil prices on these
variables. Professor Klein was awarded the renowned John Bates Clark Medal by the American
Economic Association in 1959, which is given every two years to an American economist under the
age of forty who has made a major contribution to economic thinking and knowledge. Klein was a
pioneer in the development of macroeconomic models. Klein’s models, which he had inspired and
in, many cases, built himself, were insufficient in describing the effects of major shocks like the
decade’s twin oil prices surges. Academics such as Nobel Laureate Robert Lucas chastised them for
failing to recognise that government action affects people’s spending, saving, and investing decisions
as well. Klein’s influence, however, has endured, and econometrics – with its endlessly modified,
fine-tuned, and finessed models – remains firmly at the centre of academic and policy discussions.
Klein was awarded the Nobel Prize in Economic Sciences in 1980 for developing econometric
models and applying them to the understanding of the economic fluctuations and policy. Few, if any,
research workers in the empirical area of economic science have had as many successors and as big
an influence as Lawrence Klein, according to his Nobel citation.
Professor Klein was an excellent educator who not only directed the Graduate Group in Economics’
intellectual activity for more than 20 years, but also actively for more than 20 years, but also actively
taught undergraduates in the General Honours Program for many years. During his tenure on the
faculty, he supervised and directed more graduated students and doctorate theses each year than any
other member of the department. Klein founded the Penn Institute for Economic Research (PIER) in
1993 to establish a research and teaching environment that would strengthen the University’s
position as one of the world’s top economic schools. He volunteered a lot of his time to assist the
institute expand and become a significant component of Penn Economics.

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Econometric Modelling from the Perspective of L.R. Klein
L.R. Klein’s early studies are primarily concerned with the statistical calculation of the investment
schedule. Klein spent the same time working on his PhD thesis, The Keynesian Revolution, which
was later published as a book in 1947. Klein examines, develops, and explains the General Theory of
Employment, Interest, and Money’s major ideas, proving the soundness and originality brought to
the economic approach. Klein devotes an entire chapter to analysis the arguments made by Lerner,
Reddaway, Pigou, Knight, Cassel, Hicks, Viner, Hansen and Hawtrey in the major critiques of The
General Theory. He has contributed to a number of current debates, including the impact of money
wages on employment, the savings-investment debate, and the liquidity – choice theory of interest.
The book Economic Fluctuations in the United States, released in 1950s, is another major piece of
Klein’s work from the Chicago year. Klein builds extensive macroeconomic models that are also
calculated econometrically in this work, following in the footsteps of Tinbergen.
Klein in 1951, filled a vacuum in the literature by studying the rate of change of change of real fixed
capital, which was previously unexplored. Klein focuses on two types of investment sectors: railroad
investment and electric light and power investment, in order to examine the investment process from
an empirical standpoint, and seeks to discover the variables that impact investments in these
industries. The study’s major findings show that gross investment is impacted by the previous year’s
gross operating earnings, and that gross investment is influenced by the interest rate.
L.R. Klein creates a theoretical model that describes the logic of the input-output analysis and
eliminates the premise that each economic sector can only generate a single output. Klein succeeded
in providing a technical interpretation of the input-output coefficients as structural parameters,
concluding that these coefficients are dependent on the factor demand and supply functions’
parameters. After gaining modelling expertise while working on the monograph Economic
Fluctuations in the United States, L.R. Klein collaborated with Goldberger on another monograph,
which resulted in the creation of the eponymous model. The model was estimated using limited
information maximum likelihood and is made of 15 structural equations and ten additional and
connections. Klein considered the Keynesian system to be “an extremely useful pedagogic model”,
but also “inadequate to explain observed behaviour” (and stressed the need for a dynamic model that
could characterise process over time) Thus, the main challenge for Klein and Goldberger was to
transform the Keynesian theoretical background into an empirical and dynamic model. The key
problem is to find a dynamic solution for the static Keynesian system once again. Klein’s model
entails a discussion of the estimate process efficient in the construction of econometric models, as
well as a number of issues with the usage of tradition least-squares approaches.
Klein identified five major distinctive factors: a less aggregative nature, the presence of anticipatory
data, explicit relations between inventories, sales, backlogs, and order flow, the use of the capacity
concept and the clear expression of accounting identities in current prices.
The model also includes three equations that del with non-wage income components, such as
corporate saving, non-corporate income, and depreciation. An equation for production functions,
specifications for wage, labour force, orders and backlogs, international trade, money and interest,
pricing, and a number of identities are other important components of the model. Klein addresses a
number of economic trends projected via the use of two econometric models: one for the United
States and an aggregate model for the rest of the globe based on the Project Link model in his Nobel
Lecture of 1980 titled Some Economic Scenarios for the 1980s. In the case of the United States, the
model predicts a consistent growth trend of about 3%. This trend is accompanied by increased

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inflation, higher interest rates, and a high unemployment rate. Klein sees a trade of modest growth
and reduced inflation for the remainder of the world’s industrial market economies. Klein points out
that the outcomes in poor nations are varied and great dependent on country classification. The crisis
that rocked Mexico at the end of 1994 was examined by Klein and Coutio (1996). Klein presents
extrapolations that predict a lesser contraction and a quick rebound in the next year by calculating
import and export equations on the basis of monthly frequency data from the 1982-1983 period.
Klein (2003) investigates the flow-of funds accounts, which play an important role in determining
interest rates across a range of maturities and debt characteristics. Klein provides an analysis that
sheds lights on the dynamics of relevant mortgage rates, which are important for understanding real
estate capital creation.
The achievements of L. R. Klein represent an innovative, pioneering and singular contribution to
econometrics and macroeconomics. His work on large-scale economic model construction changed
both the academic perspectives and political decision making on a global scale.

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