Non-Separability, Heterogeneous Labor Supply, Investment, and the Business Cycle
AbstractI study the effects of a monetary shock in an economy characterized by heterogenous labor schedules and non-separability between consumption and labor in the utility function. To that end, I develop a simple method to deal with household heterogeneity arising from wealth differentials. Compared to competing models in the literature, the estimated version of my model fits better the responses of output, consumption, and wages after a monetary shock. Notably, my model requires no adjustment cost in investment, and smaller degrees of habit formation preference for consumption, and wage stickiness than other standard models. Furthermore, I show that non-separability is an important source of amplification of the effects of a monetary shock on output and investment.
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Bibliographic InfoPaper provided by North Carolina State University, Department of Economics in its series Working Paper Series with number 005.
Length: 35 pages
Date of creation: May 2006
Date of revision: Aug 2006
Heterogeneous Choices; Impulse Responses; Monetary Policy;
Find related papers by JEL classification:
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-08-26 (All new papers)
- NEP-CBA-2006-08-26 (Central Banking)
- NEP-DGE-2006-08-26 (Dynamic General Equilibrium)
- NEP-MAC-2006-08-26 (Macroeconomics)
- NEP-MON-2006-08-26 (Monetary Economics)
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