Modelling the service sector

Philip King and Stephen Millard

No 500, Bank of England working papers from Bank of England

Abstract: In the wake of the financial crisis output fell dramatically while inflation remained above its target and productivity collapsed relative to its previous trend. The fall in productivity relative to trend was particularly pronounced within the service sector, and then most particularly in certain subsectors such as ‘Professional, Scientific and Technical Activities’. Given the weight of services in the economy – 75% in GDP and 50% in the CPI – it would seem that understanding how this sector works is crucial if we are to understand how the economy as a whole responds to shocks. But our standard macroeconomic models are not well suited to analysing this sector. In this paper, we try to address these deficiencies by modelling better the service sector and then examine the implications of trying to take certain features of the service sector into account. In order to do this, we first embarked on a series of structured visits to a set of firms that span the service sector. The motivation for doing this was that we could use our findings from these visits to get a better feel for how service sector firms operate and, so, to be able to construct a model of a ‘typical’ service sector firm. We then build a model taking into account what we found from the visits and examined the effects of demand shocks within the model. We find that the model can explain some of the qualitative movements in productivity seen in response to the financial crisis.

Keywords: Service sector; intangible investment (search for similar items in EconPapers)
JEL-codes: D21 D24 E22 E23 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2014-05-16
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... 28EAE0567484B40128F9 Full text (application/pdf)

Related works:
Working Paper: Modelling the service sector (2014)
Working Paper: Modelling the service sector (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0500

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().