Business Cycles and Structural Change: Two-Sector Growth Models
Date Issued
2014
Date
2014
Author(s)
Liao, Shian-Yu
Abstract
This dissertation consists of three essays concerning structural change and business cycles in response to real and nominal shocks in multi-sector growth models. In the first essay, I study and compare the relationship between sectoral total factor productivity and economic structural transformation in different models. Several papers showed that growth in agricultural productivity was essential for today’s richest countries to take off early. However, few articles noticed that growth in agricultural productivity is critical in governing long-term and large structural changes in richest countries of today. This essay studies a two-sector neoclassical growth model with subsistence agricultural consumption and agricultural capital, and shows that (i) hold-up effect which follows on complementarity between capital and labor is crucial; and (ii) growth in agricultural productivity plays a more important role than growth in non-agricultural productivity in determining long-term and large structural changes in richest countries of today.
Next, the second essay analyzes the problem of consumption dynamics between nondurables and consumer durables in response to monetary policy shocks. Empirical results indicate that consumer durables and nondurable consumption tend to comove in response to monetary policy shocks, and consumer durable prices are more flexible than nondurable prices. However, in otherwise standard two-sector neoclassical sticky-price models with flexible durable prices, following a contractionary monetary policy shock, nondurables decrease but consumer durables increase (substitution effect). Credit constraints can generate a negative income effect for borrowers because of tighter credit constraints resulted from a contractionary monetary policy. However, if durable prices are flexible, substitution effect dominates income effect, so the model still fails to generate joint decline. This essay resolves the comovement problem by adding firms’ investment and financial friction into a model with flexible durable prices. When investment is chosen by firms, contractionary monetary policy shocks reduce the relative price of durables, which induces investment and decreases firms’ real profits in the short run. Due to fewer profits remitted from firms, savers have a lower disposable income and cannot increase expenditures on consumer durables as much as otherwise. As a consequence, together with the credit constraint channel, aggregate consumer durables decrease and comove with nondurables.
Finally, the third essay investigates the business cycle comovement problem driven by investment shocks. Recent research based on sticky-price models suggests that investment shocks are the most important driver of business cycle fluctuations. Yet, investment shocks generate the comovement problem because there is an intertemporal substitution effect away from consumption and toward investment, which is inconsistent with empirical evidence that consumption tends to comove along with other real macro variables procyclically. This essay resolves the comovement problem by extending the standard neoclassical sticky-price model to a two-sector model with consumer durable services. When investment goods are used for either capital investment or consumer durable services, positive investment shocks also generate an intratemporal substitution effect away from consumer durable services toward consumption. As the intratemporal substitution effect dominates the intertemporal substitution effect, consumption increases, and thus the comovement problem in business cycles is resolved.
Subjects
結構性變遷
打靶演算法
抵押品信用限制
耐久消費財
名目僵固性
動態隨機一般均衡模型
景氣循環波動
SDGs
Type
thesis
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