Evidence for and Modelling of a Decreasing Long-Run Elasticity of Substitution between Clean and Dirty Energy

2019 ◽  
Author(s):  
Anthony Wiskich
Keyword(s):  
Elasticity Of Substitution ◽  
Long Run

scholarly journals ELASTICITY OF SUBSTITUTION AND TECHNICAL PROGRESS: IS THERE A MISSPECIFICATION PROBLEM?

2016 ◽  
Vol 22 (1) ◽  
pp. 101-121 ◽  
Author(s):  
Daniela Federici ◽  
Enrico Saltari
Keyword(s):  
Estimation Procedure ◽  
Elasticity Of Substitution ◽  
Technological Parameters ◽  
Italian Economy ◽  
Spurious Regression ◽  
Long Run ◽  
Correlation Problem ◽  
Short Run ◽  
Modeling Strategy ◽  
Two Parameters

In previous work, we estimated a dynamic model of the Italian economy, showing that its weakness in the past two decades is mainly due to the slowdown in total factor productivity growth. In those models, two parameters play a key role: technological progress and the elasticity of substitution. Recent estimates of those parameters are affected, in our opinion, by a specification problem: technological parameters are inherently long-run but their estimates are based on short-run data. Looking deeply into the estimation procedure, we show that the misspecification issue present in the estimates gives rise to a spurious regression bias (high R2, low DW), because the standard approach does not incorporate frictions and rigidities. Our modeling strategy takes account of them. Although we cannot in general say that our framework gets rid of the serial correlation problem, the statistics for our model do show that residuals are not serially correlated.

scholarly journals Unemployment, Factor Substitution and Capital Formation

2003 ◽  
Vol 4 (4) ◽  
pp. 475-495 ◽  
Author(s):  
Leo Kaas ◽  
Leopold von Thadden
Keyword(s):  
General Equilibrium ◽  
Equilibrium Model ◽  
Capital Formation ◽  
Wage Bargaining ◽  
Elasticity Of Substitution ◽  
Wage Setting ◽  
Dynamic General Equilibrium Model ◽  
Long Run ◽  
Factor Substitution ◽  
Adjustment Dynamics

Abstract We incorporate a wage-bargaining structure in a dynamic general equilibrium model and show how this feature changes short- and long-run properties of equilibria compared with a perfectly competitive setting.We discuss how employment, capital and income shares respond to wage-setting shocks and show that adjustment dynamics depend decisively on the magnitude of the elasticity of substitution between labour and capital. Values of the elasticity below unity add persistence, tend to preserve stability and lead to empirically plausible adjustment patterns. By contrast, values above unity introduce additional volatility, thereby making steady states potentially unstable.

INFLATION AND GROWTH IN THE LONG RUN: A NEW KEYNESIAN THEORY AND FURTHER SEMIPARAMETRIC EVIDENCE

2011 ◽  
Vol 16 (1) ◽  
pp. 94-132 ◽  
Author(s):  
Andrea Vaona
Keyword(s):  
Economic Growth ◽  
Time Series Data ◽  
Learning By Doing ◽  
Working Time ◽  
New Keynesian ◽  
Elasticity Of Substitution ◽  
Series Data ◽  
Fixed Cost ◽  
Data Set ◽  
Long Run

This paper explores the influence of inflation on economic growth both theoretically and empirically. We propose to merge an endogenous growth model of learning by doing with a New Keynesian one with sticky wages. We show that the intertemporal elasticity of substitution of working time is a key parameter for the shape of the inflation–growth nexus. When it is set equal to zero, the inflation–growth nexus is weak and hump-shaped. When it is greater than zero, inflation has a sizable and negative effect on growth. Endogenizing the length of wage contracts does not lead to inflation superneutrality in the presence of a fixed cost of wage resetting. Adopting various semiparametric and instrumental-variable estimation approaches on a cross-country/time-series data set, we show that increasing inflation reduces real economic growth, consistent with our theoretical model with a positive intertemporal elasticity of substitution of working time.

FREE ENTRY, MARKET SIZE, AND THE OPTIMISTIC STABILITY

2007 ◽  
Vol 09 (02) ◽  
pp. 243-268
Author(s):  
NORITSUGU NAKANISHI
Keyword(s):  
Competitive Equilibrium ◽  
Elasticity Of Substitution ◽  
Market Size ◽  
Free Entry ◽  
Social Situations ◽  
Full Account ◽  
Long Run ◽  
Almost All ◽  
Theory Of Social Situations ◽  
Stable Outcome

We examine the long-run outcomes under free entry-exit when each firm not only takes account of the effects of her own entry-exit on the market structure but also takes full account of the effects due to other firms' simultaneous entry-exit. Adopting the framework of the theory of social situations (TOSS), we derive a unique set of stable outcomes, which is based only on two fundamental assumptions of the "firms-as-profit-maximizers" and the "free entry-exit," but not on any specific mode of play (i.e., a specification of how the players make their decisions, take actions within the market, and think of the other players' behavior). We compare the stable outcome with the long-run equilibria under the competitive mode, the Cournot-Nash mode, and the monopolistically competitive mode. We find that (i) each of these equilibria can be compatible with the stable outcome only if the market size is small and (ii) none of them can be compatible with the stable outcome if the market size is sufficiently large; Further, (iii), for almost all market size, the monopolistically competitive equilibrium is compatible with the stable outcome if the elasticity of substitution is sufficiently close to (but, greater than) unity. In a sense, when the market size is sufficiently large, these three modes of play are not consistent with two fundamental assumptions.

OPTIMAL EDUCATION IN AN AGE-STRUCTURED MODEL UNDER CHANGING LABOR DEMAND AND SUPPLY

2011 ◽  
Vol 16 (2) ◽  
pp. 159-183 ◽  
Author(s):  
Alexia Prskawetz ◽  
Tsvetomir Tsachev ◽  
Vladimir M. Veliov
Keyword(s):  
Labor Supply ◽  
Educational Policy ◽  
Labor Demand ◽  
Elasticity Of Substitution ◽  
Demand And Supply ◽  
Population Growth Rates ◽  
Long Run ◽  
Age Structured ◽  
Age Structured Model ◽  
Specific Education

We introduce a model of the optimal education policy at the macro level, allowing for heterogeneity of the workforce with respect to its age and qualification skills. Within this framework we study the optimal education rate in the context of changes in labor demand (as represented by the elasticity of substitution across ages and qualification) and labor supply (as represented by a change in the population growth rates). Applying an age-structured optimal-control model, we derive features of the optimal age-specific education rate. Our results show that the relation between the elasticities of substitution of labor across ages plays a crucial role in the way the demographic changes affect (both in the short and in the long run) the optimal educational policy. We also show that under imperfect substitutability across age and qualification groups, the optimal educational policy is adjusted in advance to any change in the labor supply.

Long-Run Growth, Speed of Convergence and the Specification of Technology

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Manuel A. Gómez
Keyword(s):  
Growth Rate ◽  
Elasticity Of Substitution ◽  
Growth Speed ◽  
Speed Of Convergence ◽  
Long Run ◽  
Endogenous Growth Model ◽  
Asymptotic Speed ◽  
Production Technologies ◽  
The One ◽  
Parameter Values

AbstractThis note analyzes the effect that the specification of technology has on the long-run growth rate and the asymptotic speed of convergence in the one-sector endogenous-growth model. We compare three otherwise identical economies – with the same baseline and parameter values – but with different production technologies: CES, VES or Sobelow, respectively. The long-run growth rate and the asymptotic convergence speed under CES production are lower than the corresponding ones under Sobelow production which, in turn, are lower than those under VES production. This is because a higher elasticity of substitution entails a higher easiness to substitute capital for labor which, in the end, results in a higher long-run growth rate.

scholarly journals Fiscal Austerity in Ambiguous Times

2019 ◽  
Vol 11 (1) ◽  
pp. 89-131
Author(s):  
Axelle Ferriere ◽  
Anastasios G. Karantounias
Keyword(s):  
Fiscal Policy ◽  
Interest Rates ◽  
Public Debt ◽  
Optimal Policy ◽  
Government Spending ◽  
Ambiguity Aversion ◽  
Elasticity Of Substitution ◽  
Long Run ◽  
Optimal Fiscal Policy ◽  
Fiscal Austerity

This paper analyzes optimal fiscal policy with ambiguity aversion and endogenous government spending. We show that without ambiguity, optimal surplus-to-output ratios are acyclical and that there is no rationale for either reduction or further accumulation of public debt. In contrast, ambiguity about the cycle can generate optimally policies that resemble “austerity” measures. Optimal policy prescribes higher taxes in adverse times and front-loaded fiscal consolidations that lead to a balanced primary budget in the long run. This is the case when interest rates are sufficiently responsive to cyclical shocks, that is, when the intertemporal elasticity of substitution is sufficiently low. (JEL D81, E32, E43, E62, H21, H61, H63)

Invariant Resource Supply and Tax Incidence in a Lifecycle Growth Model

1988 ◽  
Vol 16 (4) ◽  
pp. 482-492 ◽  
Author(s):  
M. Kevin McGee
Keyword(s):  
General Equilibrium ◽  
Growth Model ◽  
Income Tax ◽  
Equilibrium Analysis ◽  
Elasticity Of Substitution ◽  
Labor Income ◽  
Flat Rate ◽  
Long Run ◽  
Wage Tax ◽  
Wage Income

The incidences of wage, income, interest, output, and expenditure taxes are examined in a dynamic general equilibrium growth model. It is shown that a flat-rate income tax and a general sales tax have the same incidence; if the production function is Cobb-Douglas (unit elasticity of substitution), both are borne entirely by labor income. Feldstein's finding that a proportional capital income tax is partly shifted onto labor income is shown to hold even when saving elasticities are zero. A proportional wage tax reduces after tax wage income by more than the tax, while increasing interest income, demonstrating that labor bears more than a 100% share of this tax's burden. These results are compared to the incidence results of static general equilibrium analysis. It is shown that the general equilibrium results hold in the long run only if the production elasticity of substitution is infinite.

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