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Real Business Cycles in The Model with Two-Person Household and Home Production

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  • Kateryna Bornukova

    (Belarusian Economic Research and Outreach Center (BEROC))

Abstract

In the U.S. economy hours and productivity are negatively correlated, and volatility of hours is two times higher than volatility of productivity. In the standard one shock RBC model hours are positively correlated with productivity, and hours are two times less volatile than productivity. This paper is an attempt to replicate the co-movement of hours and productivity observed in the post-war U.S. data using one shock model. I explore the real business cycles in the model with two-person household and home production. The model economy has a representative household of two agents. Agents allocate their time among leisure, work on the market and home production. There is a fixed cost of working on the market, and agents may choose not to work. The fluctuations in the model are driven by aggregate technology shock. I calibrate the model to U.S. data, solve and simulate it. I find that in the model hours are 2 times more volatile than productivity, and that hours and productivity are negatively correlated. The model replicates well the co-movement of hours and productivity observed in the U.S. data.

Suggested Citation

  • Kateryna Bornukova, 2011. "Real Business Cycles in The Model with Two-Person Household and Home Production," BEROC Working Paper Series 12, Belarusian Economic Research and Outreach Center (BEROC), revised May 2011.
    • Handle: RePEc:bel:wpaper:12
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    References listed on IDEAS

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    Cited by:

    1. Kateryna Bornukova, 2015. "Accounting for Labor Productivity Puzzle," BEROC Working Paper Series 26, Belarusian Economic Research and Outreach Center (BEROC).
    2. Aleksandar Vasilev, 2015. "RBC Models and the Hours-Wages Puzzle: Puzzle Solved!," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 41.

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    More about this item

    Keywords

    Business Cycles; Home Production; Labor Supply;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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