Sectoral Analyses

This wide-ranging chapter reviews a number of models that underpin aggregate analyses (‘sectoral’ models). It begins with the profusion of work on consumption (Permanent Income Hypothesis, the Life-Cycle Model, and the modern analyses that sprang from the ‘random walk’ model). Saving, durable consumption, demographics, and behavioural elements are among the many topics reviewed. The chapter continues with investment, including issues such as: the accelerator, neoclassical model, user cost of capital, Tobin’s q, effects of financial imperfections, uncertainty, state-contingent (‘S-s’) models, vintages, technical progress, and inventories. Housing is reviewed next, another innovation of the book. Finally, the models of consumption are a stepping-stone towards the macroeconomics of finance. The topics reviewed here include the CCAPM and CAPM models, the equity premium puzzle, and the term structure of interest rates, as well as developments in stock markets and the growth of finance (‘financialization’).