The structural transformation between manufacturing and services and the deline in the U.S. GDP volatility

For a single firm with a given volatility of total factor productivity at the gross output level (GTFP), the volatility of total factor productivity at the value added level (YTFP) increases with the share of intermediate goods in gross output. For a Cobb-Douglas production function in capital, labor and intermediate goods, YTFP volatility is equal to GTFP volatility divided by one minus the share of intermediate goods in gross output. In the U.S., this share is steadily around 0.6 for manufacturing and 0.38 for services during the 1960-2005 period. Thus, the same level of GTFP volatility in the two sectors implies a 55% larger YTFP volatility in manufacturing. This fact contributes to the higher measured YTFP volatility in manufacturing with respect to services. It follows that, as the services share in GDP increases from 0.53 in 1960 to 0.71 in 2005 in the U.S., GDP volatility is reduced. I construct a two-sector dynamic general equilibrium input-output model to quantify the role of the structural transformation between manufacturing and services in reducing the U.S. GDP volatility. Numerical results for the calibrated model economy suggest that the structural transformation can account for 32% of the GDP volatility reduction between the 1960-1983 and the 1984-2005 periods

Biased Technical Change, Intermediate Goods and Total Factor Productivity

Biased technical change can be defined as changes that affect the elasticity of output with respect to inputs. In this paper, I analyze the effect of biased technical change on total factor productivity (TFP). I construct an input-output economy in which firms produce gross output using capital, labor and intermediate goods. In equilibrium, biased technical change appears as an explicit part of TFP in the value added aggregate production function, where the latter is obtained through the aggregation of individual firms optimal decisions. A larger elasticity of gross output with respect to intermediates implies a smaller TFP level. I use the model to quantify the impact of biased technical change for measured TFP growth in Italy. The exercise shows that biased technical change can account for the productivity slowdown observed in Italy from 1994 to 2004

Biased Technical Change, Intermediate Goods and Total Factor Productivity

Biased technical change can be defined as changes that affect the elasticity of output with respect to inputs. In this paper, I analyze the effect of biased technical change on total factor productivity (TFP). I construct an input-output economy in which firms produce gross output using capital, labor and intermediate goods. In equilibrium, biased technical change appears as an explicit part of TFP in the value added aggregate production function, where the latter is obtained through the aggregation of individual firms optimal decisions. A larger elasticity of gross output with respect to intermediates implies a smaller TFP level. I use the model to quantify the impact of biased technical change for measured TFP growth in Italy. The exercise shows that biased technical change can account for the productivity slowdown observed in Italy from 1994 to 2004.Total factor productivity growth, Intermediate goods, Productivity slowdown

The structural transformation between manufacturing and services and the deline in the U.S. GDP volatility

For a single firm with a given volatility of total factor productivity at the gross output level (GTFP), the volatility of total factor productivity at the value added level (YTFP) increases with the share of intermediate goods in gross output. For a Cobb-Douglas production function in capital, labor and intermediate goods, YTFP volatility is equal to GTFP volatility divided by one minus the share of intermediate goods in gross output. In the U.S., this share is steadily around 0.6 for manufacturing and 0.38 for services during the 1960-2005 period. Thus, the same level of GTFP volatility in the two sectors implies a 55% larger YTFP volatility in manufacturing. This fact contributes to the higher measured YTFP volatility in manufacturing with respect to services. It follows that, as the services share in GDP increases from 0.53 in 1960 to 0.71 in 2005 in the U.S., GDP volatility is reduced. I construct a two-sector dynamic general equilibrium input-output model to quantify the role of the structural transformation between manufacturing and services in reducing the U.S. GDP volatility. Numerical results for the calibrated model economy suggest that the structural transformation can account for 32% of the GDP volatility reduction between the 1960-1983 and the 1984-2005 periods.Volatility decline, Structural change, Real business cycle, Total factor productivity

Does TFP drive Housing Prices? A Growth Accounting Exercise for Four Countries

In this paper we investigate the role of technological differences between the construction sector and the general economy in the evolution of real housing prices. In particular we ask whether the recent soar in housing prices across countries reflects the different trends of total factor productivity (TFP) in the construction sector versus the other sectors. To do this, we first compare housing and construction prices in the U.S., the U.K., Germany and Spain. We find that the two prices follow a similar pattern before 1997 and diverge afterwards in all countries. Second, we perform a growth accounting exercise to measure the contribution of relative TFP on the price of construction relative to GDP for the four countries. We find evidence of a strong positive contribution of relative TFP to construction prices in the case of the United States and Germany. Instead, in the case of Spain and the U.K., relative TFP has contributed negatively to the evolution of construction prices, which have grown due to the dynamics of wages and capital returns. We conclude that in these two countries, market conditions, rather than technological factors, have been the main culprits of the recent soar in housing prices

Does TFP drive Housing Prices? A Growth Accounting Exercise for Four Countries

In this paper we investigate the role of technological differences between the construction sector and the general economy in the evolution of real housing prices. In particular we ask whether the recent soar in housing prices across countries reflects the different trends of total factor productivity (TFP) in the construction sector versus the other sectors. To do this, we first compare housing and construction prices in the U.S., the U.K., Germany and Spain. We find that the two prices follow a similar pattern before 1997 and diverge afterwards in all countries. Second, we perform a growth accounting exercise to measure the contribution of relative TFP on the price of construction relative to GDP for the four countries. We find evidence of a strong positive contribution of relative TFP to construction prices in the case of the United States and Germany. Instead, in the case of Spain and the U.K., relative TFP has contributed negatively to the evolution of construction prices, which have grown due to the dynamics of wages and capital returns. We conclude that in these two countries, market conditions, rather than technological factors, have been the main culprits of the recent soar in housing prices.House prices; TFP; growth accounting; Cobb-Douglas

Heterogeneous Productivity Shocks, Elasticity of Substitution and Aggregate Fluctuations

We use a Dixit-Stiglitz setting to show that aggregate productivity fluctuations can be generated through changes in the dispersion of firms' productivity. When the elasticity of substitution among goods is larger than one, an increase in the dispersion raises aggregate productivity because firms at the top of the distribution produce most of output. When the elasticity is smaller than one, an increase in the dispersion reduces aggregate productivity because firms at the bottom of the distribution use most of inputs. We use individual firm data from Spanish manufacturing sectors to test the relationship between the dispersion of firms' productivity and aggregate productivity. The estimated coefficients are consistent with the predictions of the model: we find that an increase in the coefficient of variation of firms productivity of 1% increases aggregate productivity by 0.59% in sectors with an elasticity of substitution larger than one while the same increase in the coefficient of variation reduces aggregate productivity by 0.07% in sectors with an elasticity of substitution smaller than one.Heterogeneous Productivity Shocks, Elasticity of Substitution, Volatility, Aggregate Productivity.

La soluzione centralizzata del modello di Uzawa-Lucas con esternalità

In questo lavoro si ricava la soluzione centralizzata del modello di Uzawa-Lucas in presenza di esternalità. Attraverso una trasformazione che utilizza il rapporto reddito/capitale fisico e il rapporto consumo/capitale fisico, si ottengono informazioni sulle caratteristiche della transizione, sia dal punto di vista locale, sia (in via del tutto eccezionale per modelli così complessi) dal punto di vista globale. Si dimostra che l’equazione di moto del rapporto reddito/capitale fisico può agevolmente risolversi in forma chiusa, per generare peraltro una funzione logistica di convergenza verso lo stato stazionario. Una volta ottenuto questo risultato, anche l’equazione di moto per il rapporto consumo/capitale fisico può risolversi esplicitamente. Infine, anche le altre equazioni di moto per le altre variabili del modello possono essere risolte ricorsivamente.

The changing structure of government consumption spending

Este artículo documenta un aumento secular en la proporción de compras del sector privado en el gasto de consumo del gobierno: con el tiempo, el gobierno compra relativamente más bienes del sector privado y depende menos de su propia producción de valor agregado. Construimos un modelo de equilibrio general en el que el cambio tecnológico específico de la inversión explica la variación en la estructura del gasto público. El modelo predice que este proceso secular altera la transmisión de los shocks de gasto público, al aumentar la respuesta del valor añadido privado, mientras que la respuesta de las horas trabajadas se reduce. Validamos estos resultados con evidencia empírica novedosa sobre los efectos del gasto públicoWe document a secular increase in the share of purchases from the private sector in government consumption spending: over time the government purchases relatively more private-sector goods, and relies less on its own production of value added. We build a general equilibrium model in which investment-specific technological change accounts for the changing structure of government spending. The model predicts that this secular process alters the transmission of government spending shocks by raising the response of private value added, while dampening the response of hours. We validate these results with novel empirical evidence on the effects of government spending across countrie

Stochastic structural change

We propose a tractable algorithm to solve stochastic growth models of structural change. Under general conditions, structural change implies an unbalanced growth path. This property prevents the use of local solution techniques when uncertainty is introduced, and requires the adoption of global methods. Our algorithm relies on the Parameterized Expectations Approximation and we apply it to a stochastic version of a three-sector structural transformation growth model with Stone-Geary preferences. We use the calibrated solution to show that in this class of models there exists a tension between the long- and the short-run properties of the economy. This tension is due to the non-homothetic components of the various types of consumption, which are needed to fit long-run structural change, but imply a counterfactually high volatility of services, and counterfactually low volatilities of manufacturing and agriculture in the short-run