Consumption Structure and Macroeconomics: Structural Change by Reto Foellmi

By Reto Foellmi

This ebook bargains a unique point of view that permits to include altering intake and creation constitution into versions of monetary progress. ranging from the empirical statement that source of revenue and intake constitution are heavily comparable, it develops a tractable theoretical framework which permits to investigate macroeconomic types in step with those empirical proof. accordingly, crucial macroeconomic phenomena are larger understood: the explanations at the back of long-run progress, structural switch, and the impact of inequality on recommendations and progress.

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As required, the marginal utility of good k is zero if one of the goods j < A: — 1 has not been consumed. Another possibility to model lexicographic preferences with many goods would be to specify directly the expenditure function (see Falkinger (1990)). g. Matsuyama (1992)). The Stone-Geary is also common in (two-goods-)models where the individuals decide how much to consume and to bequest. Examples include Galor and Moav (2002) and Mani (2001). •'^^Eswaran and Kotwal (1993) and Laitner (2000) use lexicographic preferences in a two goods model (agricultural and manufacturing good).

However, these functional forms are seldom tractable for theoretical (macroeconomic) models. In fact, the small existing literature that uses non-homothetic preferences is forced to adopt quite restrictive utility functions - which are still much more general than their homothetic counterpart, of course. The well-known paper by Murphy, Shleifer and Vishny (1989) discusses how the degree of industrialization depends on income distribution. They use the following utility function over differentiated products j (rewritten in our notation, note that the utility function in their paper contains some typographic errors): U = — JQ (1 —c(j)) JC(7+JJ (^{j)^dj where c{j) G {0,1}.

A sufficient condition for uniqueness is 7 < ^T^/^~_\) (flat hierarchy) and 65 < 1, since then the two equilibrium curves are monotonically increasing or falling, respectively. •'^^Figure 1 suggests that the equilibrium exists if the H-curve hits the p-axis to the left of i^-curve. For most parameter values, simulations show that the equilibrium is unique. 5 Structural Change and the Kaldor Facts P r o p o s i t i o n 4 a. If the exogenous parameters satisfy pz

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