Sectoral composition and macroeconomic dynamics
Jaime Alonso-Carrera (),
Jordi Caballe () and
Xavier Raurich ()
UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)
We analyze the transitional dynamics of a model with heterogeneous consumption goods. In this model, convergence is driven by two different forces: the typical diminishing returns to capital and the sectoral change inducing the variation in relative prices. We show that this second force affects the growth rate if the two consumption goods are not Edgeworth independent and if these two goods are pro- duced with technologies exhibiting different capital intensities. Because the afore- mentioned dynamic sectoral change arises only under heterogeneous consumption goods, the transitional dynamics of this model exhibits striking differences with the growth model with a single consumption good. We also show that these differences in the transitional dynamics can give raise to large discrepancies in the welfare cost of shocks between the economy with a unique consumption good and the economy with multiple consumption goods.
Keywords: multi-sector growth models; transitional dynamics; consumption growth. (search for similar items in EconPapers)
JEL-codes: O41 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-fdg
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Working Paper: Sectoral Composition and Macroeconomic Dynamics (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:869.11
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