Stochastic Structural Change

Rubini, Loris and Moro, Alessio (2019): Stochastic Structural Change.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Structural Change, Stochastic Growth, Parameterized Expectations Approximation.
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models

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