Baumol, W., 1967, “Macroeconomics of Unbalanced Growth: The Anatomy of Urban Crisis.” American Economic Review, June, pp. 415 -426.
Hunt, B., and A. Rebucci, 2005, “The U.S. Dollar and Trade Deficit: What Accounts for the Late 1990s?” International Finance Vol. 8, No. 3, pp. 399 -434.
Hunt, B., 2007, “U.K. Inflation and Relative Prices Over the Last Decade: How Important was Globalization?” IMF Working Paper, WP/07/208.
Laxton D., and P. Pesenti, 2003, “Monetary Policy Rules for Small, Open, Emerging Economies.” Journal of Monetary Economics, 50, pp. 1109 -1146.
Prepared by Ben Hunt, (Ext. 3-6361).
Given the year-to-year volatility in GDP shares, 3-year moving averages present a more reliable picture of the trend change. For Canada and the United States, data limitation prevented using a moving average. Further, for the United States the change is between 1998 and 2006. For Canada, Norway, the U.S., and the U.K., oil production is removed from commodities because the large increase in oil prices distorts the picture.
Commodities were defined to be agriculture, fishing, forestry, mining and the production of food and beverages. It was not possible to include food and beverage production in commodities for South Africa, the United Kingdom, and the United Sates.
Other theories advance to explain the relative decline in the importance of tradable goods production are specialization (which leads to outsourcing and thus reclassification of activities previously performed in-house by manufactures) and changing consumer preferences as income rises.
The computations are derived using the database maintained in the IMF’s Research Department to support the assessment of real effective exchange rates.
The shock is implemented assuming that people must learn about the persistence in productivity growth. When agents have perfect foresight under long-lived shocks that have significant implications for wealth, rational expectations models, like GEM, can produce adjustment dynamics unlike that seen in actual data. To address this and generate closer-to-real-world adjustment dynamics, the shock is implemented assuming that each period, agents must generate forecasts of the persistence in productivity growth. Here the learning is calibrated so that agents initially learn slowly about the persistence. However, as the duration of the shock increases, agents start to learn more quickly. See Hunt (2007) for a description of the uncertainty framework and an illustration of the speed of learning.