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Post by Sapphire Capital on Aug 1, 2008 2:55:15 GMT 4
Medium Run Redux: Technical Change, Factor Shares and Frictions in the Euro Area Peter Mcadam European Central Bank (ECB); University of Kent, Canterbury - Department of Economics Alpo Willman European Central Bank (ECB) ECB Working Paper No. 915 Abstract: We develop a framework for analyzing "medium-run" departures from balanced growth, and apply it to the economies of continental Europe. A time-varying factor-augmenting production function (mimicking "directed" technical change) with a below-unitary substitution elasticity coupled with supporting short-run factor demands (and price setting) is shown to account for the observed dynamics of factor incomes shares, capital deepening and the capital-output ratio. Based on careful data accounting, we also identify a rising mark-up, which we ascribe to the rise of Services. The balanced growth path emerges as a special (and testable) case of our framework, as do existing strands of medium-run debates. papers.ssrn.com/sol3/papers.cfm?abstract_id=1147101
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