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Aggregate employment, real business cycles, and superior information

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  • Boileau, Martin
  • Normandin, Michel

Abstract

We test whether dynamic, stochastic, general equilibrium artificial economies associated with several labor market institutions provide an adequate characterization of aggregate employment volatility and dynamics. Our test is robust to possible misspecifications about the information set used by economic agents to forecast future events. Accounting for the agents' superior information, we find that the divisible labor, indivisible labor, and labor hoarding structures replicate employment volatility, in contrast to the nominal wage contracts and labor adjustment costs structures. Also, the labor hoarding structure provides a substantially better account of employment dynamics than the other labor market structures.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 49 (2002)
Issue (Month): 3 (April)
Pages: 495-520

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Handle: RePEc:eee:moneco:v:49:y:2002:i:3:p:495-520

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Web page: http://www.elsevier.com/locate/inca/505566

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  1. Cho, Jang-Ok & Cooley, Thomas F, 1995. "The Business Cycle with Nominal Contracts," Economic Theory, Springer, vol. 6(1), pages 13-33, June.
  2. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  3. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  4. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  5. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
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  9. Lars Peter Hansen & Thomas J. Sargent, 1981. "Instrumental variables procedures for estimating linear rational expectations models," Staff Report 70, Federal Reserve Bank of Minneapolis.
  10. Michel Normandin, 1996. "Budget Deficit Persistence and the Twin Deficits Hypothesis," Macroeconomics 9607001, EconWPA.
  11. Campbell, John & Deaton, Angus, 1989. "Why Is Consumption So Smooth?," Scholarly Articles 3221494, Harvard University Department of Economics.
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  14. Evans, Charles L., 1992. "Productivity shocks and real business cycles," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 191-208, April.
  15. Ingram, Beth Fisher & Kocherlakota, Narayana R. & Savin, N. E., 1994. "Explaining business cycles: A multiple-shock approach," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 415-428, December.
  16. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October.
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  18. Campbell, John & Shiller, Robert, 1987. "Cointegration and Tests of Present Value Models," Scholarly Articles 3122490, Harvard University Department of Economics.
  19. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
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Citations

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Cited by:
  1. Michel Normandin & Martin Boileau, 2003. "Dynamics of the Current Account and Interest Differentials," Cahiers de recherche 03-05, HEC Montréal, Institut d'économie appliquée.
  2. Martin Boileau & Michel Normandin, 1999. "Capacity Utilization and the Dynamics of Business Cycle Fluctuations," Cahiers de recherche CREFE / CREFE Working Papers 92, CREFE, Université du Québec à Montréal.
  3. Michel Normandin, 2004. "Econometric Inference, Cyclical Fluctuations, and Superior Information," Cahiers de recherche 04-13, HEC Montréal, Institut d'économie appliquée.
  4. Boileau, Martin & Normandin, Michel, 2003. "Labor hoarding, superior information, and business cycle dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 28(2), pages 397-418, November.
  5. Michel Normandin, 2006. "Fiscal Policies, External Deficits, and Budget Deficits," Cahiers de recherche 0632, CIRPEE.
  6. Martin Boileau & Michel Normandin, 2008. "Do Tax Cuts Generate Twin Deficits? A Multi-Country Analysis," Cahiers de recherche 0832, CIRPEE.
  7. Foued Chihi & Michel Normandin, 2008. "External and Budget Deficits in Developing Countries," Cahiers de recherche 0819, CIRPEE.
  8. Boileau, Martin & Normandin, Michel, 2003. "Capacity utilization, superior information, and the business cycle," Journal of Macroeconomics, Elsevier, vol. 25(3), pages 283-309, September.
  9. Alok Johri, Marc-André Letendre, 2006. "What do “residuals” from first-order conditions reveal about DGE models?," Department of Economics Working Papers 2006-01, McMaster University.
  10. James M. Nason & Gregor W. Smith, 2008. "Identifying the new Keynesian Phillips curve," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(5), pages 525-551.

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