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Author/Editor:
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Rebei, Nooman
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Publication Date:
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August 01, 2012
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Electronic Access:
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Free Full text
(PDF file size is 870KB).
Use the free
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
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Summary:
The paper asks how state of the art DSGE models that account for the conditional response of hours
following a positive neutral technology shock compare in a marginal likelihood race. To that end we
construct and estimate several competing small-scale DSGE models that extend the standard real
business cycle model. In particular, we identify from the literature six different hypotheses that generate
the empirically observed decline in worked hours after a positive technology shock. These models
alternatively exhibit (i) sticky prices; (ii) firm entry and exit with time to build; (iii) habit in
consumption and costly adjustment of investment; (iv) persistence in the permanent technology shocks;
(v) labor market friction with procyclical hiring costs; and (vi) Leontief production function with labor-saving technology shocks. In terms of model posterior probabilities, impulse responses, and
autocorrelations, the model favored is the one that exhibits habit formation in consumption and
investment adjustment costs. A robustness test shows that the sticky price model becomes as
competitive as the habit formation and costly adjustment of investment model when sticky wages are
included.
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Order a print copy
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Series:
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Working Paper No. 12/211
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Subject(s):
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Economic models | Labor markets | Prices
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Author's Keyword(s):
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Sticky prices | Firm entry and exit | Habit in consumption | Labor market frictions | Permanent technology shocks | Leontief production | Bayesian estimation. |
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English
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Publication Date:
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August 01, 2012
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Format:
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Paper
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Stock No:
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WPIEA2012211
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Pages:
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40
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Price:
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US$18.00 )
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Please address any questions about this title to
publications@imf.org
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