Sectoral shocks and home substitution

Alessio Moro and Satoshi Tanaka

Economics Letters, 2019, vol. 181, issue C, 57-60

Abstract: We show that the effect of a sectoral shock on the composition of sectoral shares crucially depends on whether the goods produced in the sector are home-substitutable or not. When a productivity shock hits the market sector that produces non-home-substitutable goods (e.g. manufacturing goods), the shock largely affects the composition of consumption shares of market sectors. On the other hand, when a shock hits the market sector that produces home-substitutable goods (e.g. service goods), relocation in shares mainly occurs between the sector and the home sector. We compare our results to those of the traditional three-sector model without a home sector, and show that the missing of the home substitution effects predicts completely different implications for the response of consumption shares to sectoral shocks.

Keywords: Sectoral shocks; Home production; Services sector (search for similar items in EconPapers)
JEL-codes: E21 E32 L16 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Sectoral Shocks and Home Substitution (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:181:y:2019:i:c:p:57-60

DOI: 10.1016/j.econlet.2019.04.020

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