We extend the basic RBC model to allow for biased technical changes. One broad definition of biased technical changes is changes that directly affect factor elasticities. Given the link between changes in factor elasticities and factor shares, observed fluctuations in US labor's share are motivation for this study. We find that when the technology shock process is calibrated according to US labor's share dynamics, 93 percent of US GDP volatility is accounted for. The observed countercyclical nature of labor's share is accounted for, although the model correlation is too high. As well, the model exhibits business cycles that are qualitatively similar to those of the standard model with neutral technology shocks. These findings, while robust to the short-run properties of various measures of labor's share, are sensitive to the average labor's share used in calibration, e.g. departing from a baseline calibration value of 63 percent, for steady-state labor's shares of 50 percent and 70 percent the model accounts for 107 percent and 84 percent of US GDP volatility respectively. (Copyright: Elsevier)
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Find related papers by JEL classification: E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Michele Boldrin & Michael Horvath, 1994.
"Labor Contracts and Business Cycles,"
Discussion Papers
1068, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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