Home Production, Labor Wedges, and International Real Business Cycles
AbstractThis paper explores implications of non-separable preferences with home production for international business cycles. Home production induces substitution effects that break the link between market consumption and its marginal utility and help explain several stylized facts of the open economy. In an estimated two-country model with complete asset markets in which home production generates a labor wedge that mimics its empirical counterpart, output is more correlated than consumption across countries, labor inputs and labor wedges are positively correlated across countries, and relative market consumption is negatively related to the real exchange rate. International time use surveys corroborate predictions of the model, showing a significant relationship between time spent on home production, labor wedges, and real exchange rates, both at business cycle frequencies and in the cross section of countries. By contrast, non-separabilities based on leisure do not help explain variations in labor wedges or real exchange rates.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18366.
Date of creation: Sep 2012
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Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-16 (All new papers)
- NEP-DGE-2012-09-16 (Dynamic General Equilibrium)
- NEP-MAC-2012-09-16 (Macroeconomics)
- NEP-OPM-2012-09-16 (Open Economy Macroeconomic)
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RePEc Biblio mentionsAs found on the RePEc Biblio, the curated bibliography for Economics:CitEc Project, subscribe to its RSS feed for this item.
- Loukas Karabarbounis, 2013.
"The Labor Wedge: MRS vs. MPN,"
NBER Working Papers
19015, National Bureau of Economic Research, Inc.
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