Working Paper
Non-stationary hours in a DSGE model
Abstract: The time series fit of dynamic stochastic general equilibrium (DSGE) models often suffers from restrictions on the long-run dynamics that are at odds with the data. Relaxing these restrictions can close the gap between DSGE models and vector autoregressions. This paper modifies a simple stochastic growth model by incorporating permanent labor supply shocks that can generate a unit root in hours worked. Using Bayesian methods we estimate two versions of the DSGE model: the standard specification in which hours worked are stationary and the modified version with permanent labor supply shocks. We find that the data support the latter specification.
Keywords: Labor supply; Hours of labor;
Access Documents
File(s): File format is application/pdf https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2006/wp06-3.pdf
Bibliographic Information
Provider: Federal Reserve Bank of Philadelphia
Part of Series: Working Papers
Publication Date: 2006
Number: 06-3