Chapter

The Long Run Shift‐Share: Modeling the Sources of Metropolitan Sectoral Fluctuations*

N. Edward Coulson

in Volatility and Time Series Econometrics

Published in print March 2010 | ISBN: 9780199549498
Published online May 2010 | e-ISBN: 9780191720567 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199549498.003.0002

Series: Advanced Texts in Econometrics

 The Long Run Shift‐Share: Modeling the Sources of Metropolitan Sectoral Fluctuations*

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This chapter investigates the sources of sectoral fluctuations in metropolitan economies. This delineation has four steps. First, a general ‘city-industry’ vector autoregression (VAR) is constructed, which accounts for both short and long run fluctuations at a number of different levels of aggregation. Second, a large number of ‘traditional’ models of regional economics (including the two cointegration analyses of the preceding paragraph) are shown to be reductions of this general VAR, although a by-product of the analysis is that it is not likely that all of these reductions can be applied simultaneously. The restrictions implied by the restrictions of the traditional model are tested using data from 10 sectors and five cities. None is found to be universally applicable, though some do less violence to the data than others. Given these results, the fourth step of estimating the complete VARs (for each city industry) is undertaken under four different assumptions. The overall result is that the traditional models are unsatisfactory because they neglect the role of local supply shocks, although this neglect does more damage in ‘short run’ models than in those that invoke cointegration.

Keywords: sectoral fluctuations; metropolitan economies; vector autoregression

Chapter.  9085 words. 

Subjects: Econometrics and Mathematical Economics

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