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The Role of Consumption-Labor Complementarity as a Source of Macroeconomic Instability

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  • Gliksberg, Baruch
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    Abstract

    The equilibrium ramification of a balanced budget rule are scrutinized in a one sector growth model augmented with investment frictions and a non-separable utility function in consumption and leisure. Edgeworth-complementarity between consumption and labor is formulated so as to generate a positive co-movement of consumption, output, and hours worked, as found in the data. Calibration of the model to the U.S. economy provides evidence that a balanced budget rule with a Taylor type monetary policy induce determinate equilibria.

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    File URL: http://mpra.ub.uni-muenchen.de/24816/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24816.

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    Date of creation: Jun 2010
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    Handle: RePEc:pra:mprapa:24816

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    Keywords: Fiscal-Monetary policy; Non-Separable Utility; Consumption-Labor Complementarity; Endogenous Labor; Stabilization; Determinacy; Investment;

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    1. Cogley, Timothy & Nason, James M, 1995. "Output Dynamics in Real-Business-Cycle Models," American Economic Review, American Economic Association, American Economic Association, vol. 85(3), pages 492-511, June.
    2. Miles S. Kimball & Matthew D. Shapiro, 2008. "Labor Supply: Are the Income and Substitution Effects Both Large or Both Small?," NBER Working Papers 14208, National Bureau of Economic Research, Inc.
    3. Benhabib, Jess & Schmitt-Grohé, Stephanie & Uribe, Martín, 1999. "Monetary Policy and Multiple Equilibria," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2316, C.E.P.R. Discussion Papers.
    4. Benhabib, J. & Schmitt-Grohe, S. & Uribe, M., 1999. "Avoiding Liquidity Traps," Working Papers, C.V. Starr Center for Applied Economics, New York University 99-21, C.V. Starr Center for Applied Economics, New York University.
    5. Bill Dupor, 2000. "Investment and Interest Rate Policy," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0007, Econometric Society.
    6. George W. Evans & Roger Guesnerie, 2003. "Coordination on Saddle-Path Solutions: The Eductive Viewpoint -- Linear Multivariate Models," University of Oregon Economics Department Working Papers, University of Oregon Economics Department 2003-28, University of Oregon Economics Department, revised 25 Jan 2005.
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