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Modelling the Service Sector

Thursday 13 June 2013, 1.15PM to 2.15pm

Speaker(s): Stephen Millard, Bank of England

Abstract: Standard macroeconomic models typically contain representative firms producing output at increasing marginal cost and selling it in monopolistically competitive markets. While this may be a reasonable description of manufacturing firms, it may not be a reasonable description of service firms, in which increasing returns to scale, 'bespoke output', product market frictions, and switching labour between production and intangible investment can all be particularly important. In this paper, we first outline what we found out about the sector via a series of interviews with firms of various sizes spanning the service sector. We then construct a macroeconomic model with a goods firm and three prototypical types of service firms based on these interviews and use the model to understand how service-sector firms respond to demand shocks.

Location: A/TB/035

Admission: Economics Thursday Workshop. For Staff and Postgraduate students