Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/30629
Authors: 
Malley, Jim
Woitek, Ulrich
Year of Publication: 
2009
Series/Report no.: 
CESifo working paper 2672
Abstract: 
Using a two-sector endogenous growth model, this paper explores how productivity shocks in the goods and human capital producing sectors contribute to explaining aggregate cycles in output, consumption, investment and hours. To contextualize our findings, we also assess whether the human capital model or the standard real business cycle (RBC) model better explains the observed variation in these aggregates. We find that while neither of the workhorse growth models uniformly dominates the other across all variables and forecast horizons, the two-sector model provides a far better fit to the data. Some other key results are first, that Hicks-neutral shocks explain a greater share of output and consumption variation at shorter-forecast horizons whereas human capital productivity innovations dominate at longer ones. Second, the combined explanatory power of the two technology shocks in the human capital model is greater than the Hicks-neutral shock in the RBC model in the medium- and long-term for output and consumption. Finally, the RBC model outperforms the two-sector model with respect to explaining the observed variation in investment and hours.
Subjects: 
endogenous growth
human capital
real business cycles
Bayesian estimation
VAR errors
JEL: 
C11
C52
E32
Document Type: 
Working Paper

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