DP13469 A theory of structural change that can fit the data

Author(s): Simon Alder, Timo Boppart, Andreas Müller
Publication Date: January 2019
Keyword(s): aggregation, Multi-sector growth model, non-homothetic preferences, Non-monotonic Engel curves, Relative price effects, structural change
JEL(s): E21, L16, O11, O14
Programme Areas: Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13469

We study structural change in historical consumption expenditure of the United States, the United Kingdom, Canada and Australia over more than a century. To identify preference parameters from aggregate data, we characterize the most general class of preferences in a time-additive setting that admits aggregation of the intertemporal saving decision. We parametrize and estimate such intertemporally aggregable (IA) preferences and discuss their properties in a dynamic general equilibrium framework with sustained growth. Our preferences class is considerably more flexible than the Gorman form or PIGL/PIGLOG, giving rise to a good fit of the non-monotonic pattern of structural change.