A Two-Sector Approach to Modeling U.S. NIPA Data

• Published in: Journal of money, credit and banking Vol. 35; no. 4; pp. 627 - 656
• Main Author: Whelan, Karl
• Format: Journal Article
• Language: English
• Published: Columbus Ohio State University Press 01-08-2003; The Ohio State University Press; John Wiley & Sons, Inc
• Subjects: Aggregates; Analysis; Banking system; Capital investments; Capital stock; Consumer economics; Consumption; Credit; Durable goods; Economic development; Economic growth; Economic growth models; Economic models; Economic theory; Economics; Finance; Growth models; Growth rate; Innovation; Investment; Investments; Macroeconomic modeling; Macroeconomics; Methods; Modeling; Monetary economics; National income and product accounts; NIPA; Output rate; Production management; Real output; Relative prices; Steady state economies; Studies; Technological change; U.S.A; United States; United States; United States > US
• ISSN: 0022-2879; 1538-4616; 1538-4616
• DOI: 10.1353/mcb.2003.0032

The one-sector Solow-Ramsey model is the most popular model of long-run economic growth. This paper argues that a two-sector approach, in which technological progress in the production of durable goods exceeds that in the rest of the economy, provides a far better picture of the long-run behavior of the U.S. economy. The paper shows how to use the two-sector approach to model the real chain-aggregated variables currently featured in the U.S. National Income and Product Accounts. It is shown that each of the major chain-aggregates-output, consumption, investment, and capital stock-will tend in the long run to grow at steady, but different, rates. Implications for empirical analysis based on these data are explored.