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Modelling the sectoral allocation of labour in open economy models

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  • Povoledo, Laura

Abstract

This paper presents an open economy model with tradeable and nontradeable sectors in which households cannot supply labour in both sectors at the same time. In this economy, the Frisch elasticity of labour supply is infinite. I analyse how the infinite labour supply elasticity interacts with the Producer Currency Pricing (PCP) and Local Currency Pricing (LCP) assumptions, and I find that it does not significantly alter the empirical performance of the model with respect to a broad range of statistics.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40344.

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Date of creation: 06 Jun 2012
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Handle: RePEc:pra:mprapa:40344

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Keywords: New open economy models; Tradeable and nontradeable sectors; International business cycles; Labour supply elasticity;

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  1. Maurice Obstfeld & Kenneth Rogoff, 1999. "New Directions for Stochastic Open Economy Models," NBER Working Papers 7313, National Bureau of Economic Research, Inc.
  2. Christiano, Lawrence J. & Trabandt, Mathias & Walentin, Karl, 2010. "DSGE Models for Monetary Policy Analysis," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 7, pages 285-367 Elsevier.
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