GDP growth typically vibrates with modest variation around a mean of a few percent per year, but periodically, mean growth undergoes a major shift, vibrating thereafter around a new level. I present a transmission mechanism with nonlinear dynamics that endogenously translates random sectoral...

The relative importance of permanent (trend) versus cyclical shocks to GDP has been a central issue in macroeconomics, since the work of Nelson and Plosser (1982) and Morley et al. (2003) found large trend shocks. In contrast, Perron and Wada (2009) argued for a one time change in the mean...