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Models where households are more focused on short-term horizons do not bring about qualitatively different interpretations of Portuguese GDP growth

19.02.2021

Economics in a picture: Models where households are more focused on short-term horizons do not bring about qualitatively different interpretations of Portuguese GDP growth

Different structural models may offer distinct interpretations of business cycle fluctuations when brought against the data. One important dimension in which models may differ respects the working hypothesis setting the relevant decision horizon. Models with the decision horizon shifted towards the short run (like the finitely-lived households model) may generate different responses as compared with models where this characteristic is absent (like the infinitely-lived households model).

Shifting the relevant decision horizon of households towards the short run does not bring about qualitatively different interpretations of Portuguese history, though some divergences stand out. Technology shocks play a more important role on Gross Domestic Product (GDP) developments in the infinitely-lived households model, especially in the downturns of 2009 and 2012. On the opposite direction, demand shocks plays a more important role in the finitely-lived households model, with the largest contributions taking place during the 2011-2012 downturn and the 2014's recovery. 

 

For further details, see Júlio, P. and Maria, J. (2021), “Lessons from a finitely-lived agents structural model,” Banco de Portugal Economic Studies, Vol. 7, number 1, pp. 79-99.

 

Prepared by Paulo Júlio and José Maria. The analysis, opinions and results expressed herein are those of the authors and do not necessarily coincide with those of Banco de Portugal or the Eurosystem.

 

 

 

 

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