Home production,labor wedges,and international business cycles |
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| Affiliation: | 1. University of Chicago Booth School of Business, USA;2. NBER, USA;1. Paris School of Economics, University of Paris 1 Panthéon-Sorbonne, and CEPR, France;2. Australian National University, CAMA, and EABCN, Australia;3. University .of Washington, CEPR, EABCN, and NBER, United States;1. Money Market, Swiss National Bank, Boersenstrasse 15, 8022 Zurich, Switzerland;2. Financial Stability – Oversight, Swiss National Bank, Bundesplatz 1, 3003 Bern, Switzerland;1. London Business School, Regent׳s Park, London NW1 4SA, United Kingdom;2. Department of Economics, University of Leicester, Leicester LE1 7RH, United Kingdom;1. Sao Paulo School of Economics-FGV, Brazil;2. Michigan State University, United States |
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| Abstract: | Non-separabilities due to home production break the link between market consumption and its marginal utility and help explain several stylized facts of the open economy. In an estimated two-country model with complete asset markets in which home production generates a labor wedge that mimics its empirical counterpart, output is more correlated than consumption across countries, labor inputs and labor wedges are positively correlated across countries, and relative market consumption is negatively related to the real exchange rate. Evidence from time use surveys corroborates some of the predictions of the model. |
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| Keywords: | Home production Labor wedge International business cycles Real exchange rate |
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