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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18366.
Date of creation: Sep 2012
Date of revision:
Note: EFG IFM
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
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)
You can help add them by filling out this form.
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.
- Jose-Victor Rios-Rull & Yan Bai, 2013. "Demand shocks and open economy puzzles," 2013 Meeting Papers 523, Society for Economic Dynamics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.