Persistence of Business Cycles in Multisector RBC Models
In this paper we explore whether the changing composition of output in response to technology shocks can play a significant role in the propagation of shocks over time. For this purpose we study two multisector RBC models, with two and a three sectors. We find that, whereas the two sectors model requires a high intertemporal elasticity of substitution fo consumption to match the dynamic properties of the US data, the three sector model has a strong propagation mechanism under conventional parameterizations, as long as the factor intensities in the three sectors are different enough.
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