A Theory of Structural Change That Can Fit the Data
- American Economic Journal: Macroeconomics (Forthcoming)
We study structural change in historical consumption expenditure of the
United States, the United Kingdom, Canada, and Australia over more
than a century. We characterize the most general class of preferences
in a time-additive setting that admits aggregation of the saving decision
and allows to identify preference parameters from aggregate data.
We parametrize and estimate such intertemporally aggregable (IA) preferences
and discuss their properties in a dynamic general equilibrium
framework with sustained growth. Our preference class is considerably
more flexible than the Gorman form or PIGL, giving rise to a good fit of
the non-monotonic pattern of structural change.
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