This contribution is made up of two parts. The first is devoted to a short review of the advantages of continuous time modelling over the discrete time modelling in the specification of macroeconomic models. A basic issue concerning the specification of macroeconomic models is whether they should be specified in continuous or discrete time. Although it is likely that an economy might be best represented by a set of non-linear mixed difference/differential equations, the analysis of such a system is at present intractable. If a choice has to be made, we think that a continuous rather than a discrete model gives a better representation. A number of advantages that we briefly summarize motivates this choice. In the second part, we estimate a dynamic disequilibrium model of the Italian economy to explore some relevant features characterizing its evolution in the last three decades, such as the stagnant labor productivity, the decline of the wage share and the weak impact of the information and communication technology (ICT) on the total factor productivity (TFP). The modelling strategy is based on the distinction between traditional and ICT capital. The model behaves quite well in replicating the dynamics of the Italian economy. It also shows however that there remains some structural inefficiency, worsened in recent years. In fact, our main finding shows that there exists a permanent gap between “optimal” and actual output, which increased in the latter part of the sample period. While a fraction of this gap can be attributed to unavoidable (market and nonmarket) adjustment costs, some is associated to efficiency losses.

The continuous time approach to macroeconomic modelling with an application to the Italian economy / Federici, Daniela; Saltari, Enrico. - STAMPA. - (2017), pp. 23-44.

The continuous time approach to macroeconomic modelling with an application to the Italian economy

Federici, Daniela;Enrico Saltari
2017

Abstract

This contribution is made up of two parts. The first is devoted to a short review of the advantages of continuous time modelling over the discrete time modelling in the specification of macroeconomic models. A basic issue concerning the specification of macroeconomic models is whether they should be specified in continuous or discrete time. Although it is likely that an economy might be best represented by a set of non-linear mixed difference/differential equations, the analysis of such a system is at present intractable. If a choice has to be made, we think that a continuous rather than a discrete model gives a better representation. A number of advantages that we briefly summarize motivates this choice. In the second part, we estimate a dynamic disequilibrium model of the Italian economy to explore some relevant features characterizing its evolution in the last three decades, such as the stagnant labor productivity, the decline of the wage share and the weak impact of the information and communication technology (ICT) on the total factor productivity (TFP). The modelling strategy is based on the distinction between traditional and ICT capital. The model behaves quite well in replicating the dynamics of the Italian economy. It also shows however that there remains some structural inefficiency, worsened in recent years. In fact, our main finding shows that there exists a permanent gap between “optimal” and actual output, which increased in the latter part of the sample period. While a fraction of this gap can be attributed to unavoidable (market and nonmarket) adjustment costs, some is associated to efficiency losses.
Theoretical Foundations of Macroeconomic Policy Growth, productivity and public finance
9781138645844
Continuous Time Estimation, CES Production Function, Elasticity of Substitution, ICT Technical Change
02 Pubblicazione su volume::02a Capitolo o Articolo
The continuous time approach to macroeconomic modelling with an application to the Italian economy / Federici, Daniela; Saltari, Enrico. - STAMPA. - (2017), pp. 23-44.
File allegati a questo prodotto
File Dimensione Formato  
Federici_Continuous_2017.pdf

solo gestori archivio

Licenza: Tutti i diritti riservati (All rights reserved)
Dimensione 223.78 kB
Formato Adobe PDF
223.78 kB Adobe PDF   Visualizza/Apri   Richiedi una copia

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/926062
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact