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Temporal aggregation in a multi-sector economy with endogenous growth

  • Jean Mercenier
  • Philippe Michel

We provide a theoretical treatment of temporal aggregation in models that exhibit long-term endogenously-generated steady growth; hence generalizing our previous analysis (Econometrica 62, 1994, pp. 635-56). We introduce the property of steady-growth invariance - that the long-term growth of the continuous-time economy not be affected by the discretization - which imposes consistency restrictions on the joint formulation of preferences and stock accumulation of the discrete-time approximation. We establish, under mild conditions, these restrictions in the form of necessary and sufficient conditions on the discretization.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 554.

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Date of creation: 1995
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Handle: RePEc:fip:fedmwp:554
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  1. Christiano, Lawrence J & Eichenbaum, Martin & Marshall, David, 1991. "The Permanent Income Hypothesis Revisited," Econometrica, Econometric Society, vol. 59(2), pages 397-423, March.
  2. Eric W. Bond & Ping Wang & Chong K. Yip, 1993. "A general two sector model of endogenous growth with human and physical capital," Research Paper 9303, Federal Reserve Bank of Dallas.
  3. McGrattan, Ellen R., 1996. "Solving the stochastic growth model with a finite element method," Journal of Economic Dynamics and Control, Elsevier, vol. 20(1-3), pages 19-42.
  4. Christiano, Lawrence J. & Eichenbaum, Martin, 1987. "Temporal aggregation and structural inference in macroeconomics," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 26(1), pages 63-130, January.
  5. Burdett, Kenneth & Coles, Melvyn G & van Ours, Jan C, 1994. "Temporal Aggregation Bias in Stock-Flow Models," CEPR Discussion Papers 967, C.E.P.R. Discussion Papers.
  6. Christiano, Lawrence J. & Fisher, Jonas D. M., 2000. "Algorithms for solving dynamic models with occasionally binding constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 24(8), pages 1179-1232, July.
  7. Christiano, Lawrence J., 1985. "A method for estimating the timing interval in a linear econometric model, with an application to Taylor's model of staggered contracts," Journal of Economic Dynamics and Control, Elsevier, vol. 9(4), pages 363-404, December.
  8. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
  9. Mercenier, J. & Michel, P., 1991. "Discrete Time Finite Horizon Approximation of Optimal Growth with Steady State Invariance," Cahiers de recherche 9122, Universite de Montreal, Departement de sciences economiques.
  10. Lars Peter Hansen & Thomas J. Sargent, 1981. "Aggregation over time and the inverse optimal predictor problem for adaptive expectations in continuous time," Staff Report 74, Federal Reserve Bank of Minneapolis.
  11. Lars Peter Hansen & Thomas J. Sargent, 1980. "Methods for estimating continuous time Rational Expectations models from discrete time data," Staff Report 59, Federal Reserve Bank of Minneapolis.
  12. Caballe, Jordi & Santos, Manuel S, 1993. "On Endogenous Growth with Physical and Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1042-67, December.
  13. Mercenier, J. & Michel, P., 1991. "A Criterion for Time Aggregation Intertemporal Dynamic Models," Cahiers de recherche 9108, Universite de Montreal, Departement de sciences economiques.
  14. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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