Modeling investment-sector efficiency shocks

When does disaggregation matter?

Luca Guerrieri, Dale Henderson, Jinill Kim

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

The most straightforward way to analyze investment-sector productivity developments is to construct a two-sector model with a sector-specific productivity shock. An often used modeling shortcut accounts for such developments using a one-sector model with shocks to the efficiency of investment in a capital accumulation equation. This shortcut is theoretically justified when some stringent conditions are satisfied. Using a two-sector model, we consider the implications of relaxing several of the conditions that are at odds with the U.S. Input-Output Tables, including equal factor shares across sectors. The effects of productivity shocks to an investment-producing sector of our two-sector model differ from those of efficiency shocks to investment in a one-sector model. Notably, expansionary productivity shocks boost consumption in every period, whereas expansionary efficiency shocks cause consumption to fall substantially for many periods.

Original languageEnglish
Pages (from-to)891-917
Number of pages27
JournalInternational Economic Review
Volume55
Issue number3
DOIs
Publication statusPublished - 2014 Jan 1

Fingerprint

Disaggregation
Modeling
Two-sector model
Productivity shocks
Productivity
Input-output table
Capital accumulation
Factor shares

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Modeling investment-sector efficiency shocks : When does disaggregation matter? / Guerrieri, Luca; Henderson, Dale; Kim, Jinill.

In: International Economic Review, Vol. 55, No. 3, 01.01.2014, p. 891-917.

Research output: Contribution to journalArticle

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