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One of the central hypotheses of the neoclassical growth literature is the balanced- growth hypothesis, which predicts that output, consumption, and investment grow at the same rate. Empirically, this implies that the consumption-to-output ratio and the investment-to-output ratio must be stationary and that consumption and investment must be cointegrated with output. This paper tests these implications with respect to Germany, using unit root tests and cointegration techniques that allow for an endogenously determined structural break. We find that the long-run growth path of the German economy is consistent with the balanced-growth hypothesis if we allow for a structural break associated with the worldwide productivity slowdown of the early 1970s.

Item Type: MPRA Paper -

Original Title: Balanced growth and structural breaks: Evidence for Germany-

Language: English-

Keywords: Balanced growth × Unit roots × Cointegration × Endogenous structural breaks-

Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space ModelsD - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and SavingE - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E23 - Production-

Author: Herzer, Dierk


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