Consumption Structure and Macroeconomics: Structural Change by Reto Foellmi

By Reto Foellmi

This ebook deals a singular viewpoint that permits to include altering intake and construction constitution into versions of financial progress. ranging from the empirical remark that source of revenue and intake constitution are heavily similar, it develops a tractable theoretical framework which allows to investigate macroeconomic versions in keeping with those empirical evidence. accordingly, vital macroeconomic phenomena are greater understood: the explanations at the back of long-run progress, structural switch, and the impact of inequality on ideas and development.

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Before proceeding, we state and prove a Lemma. L e m m a 0 Assume p{j) = (^ < oo for 0 < j < a. "• dj -^\J) - jv"{c{j)) •1—7 h. Ifj< 1, limj_>o ^ t ' ( c ( j ) ) = 0. c. t s = argmaxi;(c(j)) and v{s) =: •1—-y El or if v{c{j)) is hounded from above, then limj_>o \zz- ('^(c(i)) — S) = 0 for all 7>0. Proof, a. 13). b. lim,_>o '^v{c{3)) = lim,_>o j^^^c^U) = -limc_>c(o) ^ i ^ M O ) l m j - > o i c ( j ) = 0. The term — limc_>cro^ nr\ is finite because — ,,}{ was assumed to be de- creasing in c and. Finally, limj_>o jc(j) = 0 This limit being zero means that c{j) goes to infinity at a lower rate than j .

F4-^ (l+7)(2p-l)^ . 11-) for the zero-profit condition. 4-2 A Unique Equilibrium To examine existence and uniqueness of the dynamic equilibrium we analyze the respective equilibrium conditions graphically. We denote the resource constraint by R and the zero profit condition by II and draw R and II in a (^, p,p)-diagram. 1). 1 the vertical axis measures the growth rate g. t p = 1). Observe that 6 = 0 and p = 1 is the limiting case where the innovator has neither a waiting time nor enough demand to charge a price above marginal cost.

On the one hand, the m^ertemporal substitution effect causes marginal utility to fall only at the rate (7(1—7); ^^ ^^^ other side the infratemporal substitution implies that marginal utility falls at rate 7. In total, marginal utility falls at rate cr(l — 7) + 7 which is less than cr if cr > 1 and bigger than cr if cr < 1. 4 Equilibrium Growth Path We now describe the general equilibrium of the model. We start by defining the equilibrium growth path. Then we establish the conditions under which a unique path exists.

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