Modelling Tails of Aggregated Economic Processes in a Stochastic Growth Model
AbstractWe present an annual sequence of wages in England starting in 1245. We show that a standard AK-type growth model with capital externality and stochastic productivity shocks is unable to explain important features of the data. We then consider random returns to scale. Moderate episodes of increasing returns to scale and growth are shown to be compatible with stationarity. Further, random returns to scale generate heteroskedasticity, a feature common to macroeconomic time series. Third, stationary distributions display fat tails if returns to scale are episodically increasing. We provide several inference results to support randomness of returns to scale.
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Bibliographic InfoPaper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2012-29.
Date of creation: Oct 2012
Date of revision:
Economic growth; Unified growth theory; Heteroskedasticity; Fat tails;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
- N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-08 (All new papers)
- NEP-DGE-2013-02-08 (Dynamic General Equilibrium)
- NEP-EFF-2013-02-08 (Efficiency & Productivity)
- NEP-FDG-2013-02-08 (Financial Development & Growth)
- NEP-ORE-2013-02-08 (Operations Research)
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