A two-sector approach to modeling U.S. NIPA data

Karl Whelan ()

No 2001-04, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The one-sector Solow-Ramsey model is the most popular model of long-run economic growth. This paper argues that a two-sector approach, which distinguishes the durable goods sector from the rest of the economy, provides a far better picture of the long-run behavior of the U.S. economy. Real durable goods output has consistently grown faster than the rest of the economy. Because most investment spending is on durable goods, the one-sector model's hypothesis of balanced growth, so that the real aggregates for consumption, investment, output, and the capital stock all grow at the same rate in the long run, is rejected by U.S. data. In addition, to model these aggregates as currently constructed in the U.S. National Accounts, a two-sector approach is required. Implications for empirical macroeconomics are explored.

Keywords: Economic development; Econometric models; Macroeconomics (search for similar items in EconPapers)
Date: 2001
New Economics Papers: this item is included in nep-dev and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Related works:
Journal Article: A Two-Sector Approach to Modeling U.S. NIPA Data (2003)
Working Paper: A two-sector approach to modeling U.S. NIPA data (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2001-04

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