Extremal behavior of aggregated economic processes in a structural growth model

Stéphane Auray, Aurélien Eyquem and Frédéric Jouneau-Sion ()
Additional contact information
Frédéric Jouneau-Sion: Universites Lille Nord de France

Cahiers de recherche from Departement d'économique de l'École de gestion à l'Université de Sherbrooke

Abstract: This paper proposes a structural approach to growth modeling relying on random return scale. An RBC-like model in which return to scale may be strictly increasing or decreasing depending on shocks is explicitly derived. We show that relevant component of usual macroeconomic models (including capital, growth, various relative prices) are all related to a Random Autoregressive Coefficient model. Recent works on extreme behavior on dependent process emphasize some properties of this model that are worth from the economic viewpoint. First, this model typically displays fat tail behavior event if the shocks do not. Second, records (both historically high and low points) are less frequent than in the usual stationary case but tend to appear in cluster. We show that both fat tails and clustering of extreme values are consistent with arbitrarily small variations of the autoregressive coefficient around the usual unit-root case. As such, distinguishing RCA from a more usual constant autoregressive model from available macro data may then be difficult and typically require very long data set. To this end, we propose a direct test based on the annual sequence of real wages in England recorded since the XIII-th century onwards. The test clearly reject the constant AR model and supports the Random coefficient hypothesis.

Keywords: Economic growth; extremal behavior; dependent processes (search for similar items in EconPapers)
JEL-codes: C22 C46 N13 O41 O47 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2009-09-01, Revised 2010-03-10
New Economics Papers: this item is included in nep-ecm
References: Add references at CitEc
Citations:

Downloads: (external link)
http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-0917.pdf First version, 2009 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:shr:wpaper:09-17

Access Statistics for this paper

More papers in Cahiers de recherche from Departement d'économique de l'École de gestion à l'Université de Sherbrooke Contact information at EDIRC.
Bibliographic data for series maintained by Jean-François Rouillard ().