Type: Working Paper
The Role of Curvature in the Transformation Frontier for Measuring Technology Shocks
Working Paper, EUI MWP, 2010/27
MENNUNI, Alessandro, The Role of Curvature in the Transformation Frontier for Measuring Technology Shocks, EUI MWP, 2010/27 - https://hdl.handle.net/1814/14815
Retrieved from Cadmus, EUI Research Repository
In the usual version of the neoclassical growth model used to identify neutral (N-Shock) and investment shocks (I-Shock), a linear transformation frontier between consumption and investment goods is assumed. This paper extends the original framework, allowing for curvature in the transformation frontier, and studies how this affects the relative price of investment goods and hence the identification of investment shocks. A concave frontier allows a substantial improvement in the prediction of the saving rate. Furthermore, a concave frontier induces short-run aggregate effects of relative demand shifts, thereby fostering the propagation of the shocks under consideration, which overall account for 86% of the aggregate fluctuations. When I identify shocks with curvature, the Nshock appears to be stationary while the I-shock is a unit root. This leads the N-shock to play a major role: 91% of the fluctuations explained are due to the N- shock.
Cadmus permanent link: https://hdl.handle.net/1814/14815
Series/Number: EUI MWP; 2010/27