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MEDIUM RUN REDUX

Published online by Cambridge University Press:  08 February 2012

Peter McAdam  and
Alpo Willman
Peter McAdam*
Affiliation:
European Central Bank and University of Surrey
Alpo Willman
Affiliation:
European Central Bank
*
Address correspondence to: Peter McAdam, Research Department, European Central Bank Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany; e-mail: peter.mcadam@ecb.europa.eu.
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Abstract

We develop a framework for measuring and analyzing medium-run departures from balanced growth, and apply it to developments in the euro area. A time-varying factor-augmenting production function (mimicking directed technical change) with below-unitary substitution elasticity is shown to account for the observed dynamics of factor incomes shares, TFP growth, and its components. Based on careful data accounting, we also identify a rising markup and the importance of financial-market regulations in the 1970s. The balanced growth path emerges as a special (and testable) case of our framework, as do existing strands of medium-run debates.

Keywords

Medium RunEuro AreaElasticity of SubstitutionDirected Technical ChangeProductivityIncome DistributionOkun's Law

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Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Issue 4 , June 2013 , pp. 695 - 727
Copyright
Copyright © Cambridge University Press 2012 

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