Non-stationary Hours in a DSGE Model |
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| Authors: | YONGSUNG CHANG,TAEYOUNG DOH&dagger ,FRANK SCHORFHEIDE&Dagger |
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| Affiliation: | Yongsung Chang;is Associate Professor at Seoul National University, School of Economics, Shillim-Dong, Kwanak-Gu, Seoul 151-742, Korea (E-mail:). Taeyoung Doh;is an Economist at the Federal Reserve Bank of Kansas City, Research Department, Kansas City, MO 64198 (E-mail:). Frank Schorfheide;is Associate Professor at University of Pennsylvania, Department of Economics, McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104-6297;Centre for Economic Policy Research (CEPR);National Bureau of Economic Research (NBER) (E-mail:). |
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| 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. Using Bayesian methods we estimate a stochastic growth model in which hours worked are stationary and a modified version with permanent labor supply shocks. If firms can freely adjust labor inputs, the data support the latter specification. Once we introduce frictions in terms of labor adjustment costs, the overall time series fit improves and the model specification in which labor supply shocks and hours worked are stationary is preferred. |
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| Keywords: | C32 E52 F41 |
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