Calibration and the Volatility of Labor: A Cautionary Note
AbstractA key parameter in real business cycle models is the weight on the utility of leisure. Typically this parameter is chosen so that the steady-state level of work activity matches the corresponding measure in the data, i.e. the amount of time workers spend in market activity. While the calibration of this parameter is often highlighted in business cycle research, this paper demonstrates that this parameter has no influence on equilibrium characteristics of the Hansen (1985) indivisible labor model, when solved using traditional methods. Hence, the functional form of utility rather than the parameterization of utility is the critical factor.
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Other versions of this item:
- Salyer, Kevin D., 2002. "Calibration and the volatility of labor: a cautionary note," Economics Letters, Elsevier, vol. 77(2), pages 265-269, October.
- Kevin Salyer, 2003. "Calibration and the Volatility of Labor: A Cautionary Note," Working Papers 17, University of California, Davis, Department of Economics.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
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" The Econometrics of the General Equilibrium Approach to Business Cycles,"
Scandinavian Journal of Economics,
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- Finn E. Kydland & Edward C. Prescott, 1990. "The econometrics of the general equilibrium approach to business cycles," Staff Report 130, Federal Reserve Bank of Minneapolis.
- Gary Hansen, 2010.
"Indivisible Labor and the Business Cycle,"
Levine's Working Paper Archive
233, David K. Levine.
- Guo, Jang-Ting, 2004. "Increasing returns, capital utilization, and the effects of government spending," Journal of Economic Dynamics and Control, Elsevier, vol. 28(6), pages 1059-1078, March.
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