12
GALSTYAN AND LANE
Appendix A: Benchmark Steady State
In the benchmark steady state, labor is distributed between the sectors according to
LT=—αL(1 - γ∖ L
αL(1 γ) + βLγ
LN =
βL Y L
αL(1 - Y)+ βLY
The relative price of non-traded goods is
PN =
1 1-βL-βκ αZ βZ ∖1-βK
ηLN 1-βK Z 1-ακ 1-βK
. K' ακ βκ -βi
where η = αLακ αK r 1-αK 1-βκ β-1βκ eK
Capital is distributed between the sectors as follows
{(KL LαL Z αZ -~ αK1-ι
KT = T----
r
(A.1)
(A.2)
(A.3)
(A.4)
-
KN = PN
1
βK-1
βκ lNl Zβz ! βK1-1
r
(A.5)
In the benchmark steady state, the levels of consumption of traded and nontraded
goods are equal to the respective outputs and are given by
CT = YT = ZαZLTαLKTαK
(A.6)
CN = YN = ZβZLβNLKNβK (A.7)
where we normalise AT = AN = 1 and we assume a zero depreciation rate such that the
steady state levels of private and public investment are zero.