Comparing dynamic multisector models

We construct a multisector DSGE model with input-output linkages and a single type of physical capital that is costly to reallocate across sectors. Our model with intratemporal costs of allocating capital fits sectoral output data as well as existing models with sector-specific capital, both in terms of volatility and comovement with aggregate output as well as pairwise correlations between sectors. The spectra of sectoral output produced by our model is similar to those from the other models. The importance of sectoral shocks in our model is also similar to those from other models. However, our simplified model is much more amenable to extensions involving occasionally-binding constraints than the competitor models that feature large state spaces. (C) 2019 Elsevier B.V. All rights reserved.