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Learning-by-Doing or Habit Formation?

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  • Hafedh Bouakez

    (HEC Montreal)

  • Takashi Kano

    (Bank of Canada)

Abstract

In a recent paper, Chang, Gomes, and Schorfheide (American Economic Review 2002, p. 1498-1520) extend the standard real business cycle (RBC) model to allow for a learning-by-doing (LBD) mechanism whereby current labor supply affects future productivity. They show that this feature magnifies the propagation of shocks and improves the matching performance of the standard RBC model. In this paper, we show that the LBD model is nearly observationally equivalent to an RBC model with habit formation in labor (or, equivalently, in leisure). Under the same calibration of the parameters, the two models share the same equilibrium paths of output, consumption, and investment, but have different implications for hours worked. Using Bayesian techniques, we investigate which of the LBD and Habit models fits the U.S. data better. Our results suggest that the Habit specification is more strongly supported by the data. (Copyright: Elsevier)

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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 9 (2006)
Issue (Month): 3 (July)
Pages: 508-524

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Handle: RePEc:red:issued:v:9:y:2006:i:3:p:508-524

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Related research

Keywords: Learning-by-doing; Habit formation; Bayesian analysis;

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References

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  2. Craig Burnside & Martin Eichenbaum, 1994. "Factor Hoarding and the Propagation of Business Cycles Shocks," NBER Working Papers 4675, National Bureau of Economic Research, Inc.
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  5. Yongsung Chang & Joao F. Gomes & Frank Schorfheide, 2002. "Learning-by-Doing as a Propagation Mechanism," American Economic Review, American Economic Association, American Economic Association, vol. 92(5), pages 1498-1520, December.
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  16. Robert E. Hall, 1997. "Macroeconomic Fluctuations and the Allocation of Time," NBER Working Papers 5933, National Bureau of Economic Research, Inc.
  17. Lettau, M. & Uhlig, H., 1995. "Can Habit Formation be Reconciled with Business Cycle Facts?," Discussion Paper, Tilburg University, Center for Economic Research 1995-54, Tilburg University, Center for Economic Research.
  18. Eichenbaum, Martin S & Hansen, Lars Peter & Singleton, Kenneth J, 1988. "A Time Series Analysis of Representative Agent Models of Consumption and Leisure Choice under Uncertainty," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(1), pages 51-78, February.
  19. Bover, Olympia, 1991. "Relaxing Intertemporal Separability: A Rational Habits Model of Labor Supply Estimated from Panel Data," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 9(1), pages 85-100, January.
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