 Can Modern Theories of Structural Change Fit Business Cycles Data?Loris Rubini and Alessio Moro No 18879, CEPR Discussion Papers from Centre for Economic Policy Research Abstract: We investigate the ability of workhorse structural change models to account for the business cycle properties of an economy. We consider three preference specifications: Herrendorf, Rogerson and Valentinyi (2014, HRV), Boppart (2014, BOP), and Comin, Lashkari and Mestieri (2021, CLM), paired with standard sectoral production functions subject to random total factor productivity (TFP) shocks. In each case, we estimate preference parameters using long-run structural change data and calibrate sectoral TFP processes on observed relative prices with a procedure common across models. All models generate substantially less aggregate volatility than in the data, and none accounts for the full set of business cycle facts: CLM performs best on sectoral consumption volatility and on aggregate comovement, HRV alone delivers procyclical aggregate labor, and BOP best captures the cyclicality of consumption and the relative volatility of investment. We investigate the role of the effective intertemporal elasticity of substitution and the income and substitution effects implied by each preference specification in generating these differences across models. Keywords: Real business cycles; Structural change; Stochastic growth (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:18879 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK. |
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