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Stochastic Structural Change

Author

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  • Rubini, Loris
  • Moro, Alessio

Abstract

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.

Suggested Citation

  • Rubini, Loris & Moro, Alessio, 2019. "Stochastic Structural Change," MPRA Paper 96144, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:96144
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    References listed on IDEAS

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    Cited by:

    1. Blanco, Cesar & Diz, Sebastian, 2021. "Optimal monetary policy with non-homothetic preferences," MPRA Paper 107427, University Library of Munich, Germany.

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    More about this item

    Keywords

    Structural Change; Stochastic Growth; Parameterized Expectations Approximation.;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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