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Consumption composition and macroeconomic dynamics

Listed author(s):
  • Alonso-Carrera Jaime

    (Departamento de Fundamentos del Análisis Económico and RGEA, Universidade de Vigo, Spain)

  • Caballé Jordi

    ()

    (Departament d’Economia i d’Història Econòmica and MOVE, Universitat Autònoma de Barcelona and Barcelona GSE, Edifici B. 08193 Bellaterra (Barcelona), Spain)

  • Raurich Xavier

    (Departament de Teoria Econòmica and CREB, Universitat de Barcelona, Spain)

We analyze the transitional dynamics of an economic model with heterogeneous consumption goods where convergence is driven by two different forces: the typical diminishing returns to capital and the dynamic adjustment in consumption expenditure induced by the variation in relative prices. We show that this second force affects the growth rate if the consumption goods are produced with technologies exhibiting different capital intensities and if the intertemporal elasticity of substitution is not equal to one. Because the aforementioned growth effect of relative prices arises only under heterogeneous consumption goods, the transitional dynamics of this model exhibits striking differences with the growth model with a single consumption good. We also show that these differences in the transitional dynamics can give raise to large discrepancies in the welfare cost of shocks.

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File URL: https://www.degruyter.com/view/j/bejm.2015.15.issue-1/bejm-2014-0025/bejm-2014-0025.xml?format=INT
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Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 15 (2015)
Issue (Month): 1 (January)
Pages: 1-42

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Handle: RePEc:bpj:bejmac:v:15:y:2015:i:1:p:42:n:9
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  1. Timo Boppart, 2014. "Structural Change and the Kaldor Facts in a Growth Model With Relative Price Effects and Non‐Gorman Preferences," Econometrica, Econometric Society, vol. 82, pages 2167-2196, November.
  2. Bond, Eric W. & Wang, Ping & Yip, Chong K., 1996. "A General Two-Sector Model of Endogenous Growth with Human and Physical Capital: Balanced Growth and Transitional Dynamics," Journal of Economic Theory, Elsevier, vol. 68(1), pages 149-173, January.
  3. Papageorgiou, Chris & Perez-Sebastian, Fidel, 2006. "Dynamics in a non-scale R&D growth model with human capital: Explaining the Japanese and South Korean development experiences," Journal of Economic Dynamics and Control, Elsevier, vol. 30(6), pages 901-930, June.
  4. D. Fiaschi & Andrea Mario Lavezzi, 2004. "Nonlinear growth in a long-run perspective," Applied Economics Letters, Taylor & Francis Journals, vol. 11(2), pages 101-104.
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