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

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  • Karl Whelan

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.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2001-04.

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Date of creation: 2001
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Handle: RePEc:fip:fedgfe:2001-04

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Keywords: Economic development ; Econometric models ; Macroeconomics;

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  7. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
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  13. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
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  16. Karl Whelan, 2000. "A guide to the use of chain aggregated NIPA data," Finance and Economics Discussion Series 2000-35, Board of Governors of the Federal Reserve System (U.S.).
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