Karl Whelan



behavior balanced growth economic growth economic development mathematical models stochastic processes business cycles fluctuations solow growth model

New evidence on balanced growth, stochastic trends, and economic fluctuations (2004)

Abstract The one-sector Solow-Ramsey growth model informs how most modern researchers characterize macroeconomic trends and cycles, and evidence supporting the model'sbalanced growth predictions is often cited. This paper shows, however, that the inclu-sion of recent data leads to the balanced growth predictions being rejected. An alter-native balanced growth hypothesis that the ratio of nominal consumption to nominalinvestment is stationary is put forward, and new measures of the stochastic trendsand cycles in aggregate US data are derived based on this hypothesis. The contrastingbehavior of real and nominal ratios is consistent with a two-sector model of economic growth, with separate production technologies for consumption and investment and two stochastic trends underlying the long-run behavior of all macroeconomic series. Empirical estimates of these stochastic trends are presented based on a structural VAR and the role played in the business cycle by shocks to these trends is discussed.
Collections Ireland -> University College Dublin -> School of Economics
Ireland -> University College Dublin -> College of Social Sciences and Law
Ireland -> University College Dublin -> Economics Research Collection

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Karl Whelan

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Karl Whelan
University College Dublin
Total Publications: 69