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Sectoral shocks and home substitution

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  • Moro, Alessio
  • Tanaka, Satoshi

Abstract

We show that the effect of a sectoral shock on the composition of sectoral shares crucially depends on whether the goods produced in the sector are home-substitutable or not. When a productivity shock hits the market sector that produces non-home-substitutable goods (e.g. manufacturing goods), the shock largely affects the composition of consumption shares of market sectors. On the other hand, when a shock hits the market sector that produces home-substitutable goods (e.g. service goods), relocation in shares mainly occurs between the sector and the home sector. We compare our results to those of the traditional three-sector model without a home sector, and show that the missing of the home substitution effects predicts completely different implications for the response of consumption shares to sectoral shocks.

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  • Moro, Alessio & Tanaka, Satoshi, 2019. "Sectoral shocks and home substitution," Economics Letters, Elsevier, vol. 181(C), pages 57-60.
    • Handle: RePEc:eee:ecolet:v:181:y:2019:i:c:p:57-60
    DOI: 10.1016/j.econlet.2019.04.020
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    More about this item

    Keywords

    Sectoral shocks; Home production; Services sector;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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