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Learning-by-doing or Habit Formation?

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  • Takashi Kano
  • Hafedh Bouakez

    ()
    (International Department Bank of Canada)

Abstract

In a recent paper, Chang, Gomes, and Schorfheide (2002) extend the standard real business cycle (RBC) model to allow for a learning-by-doing (LBD) mechanism whereby current labour supply affects future productivity. They show that this feature magnifies the propagation of shocks and improves the matching performance of the standard RBC model. In this paper, the authors show that the LBD model is nearly observationally equivalent to an RBC model with habit formation in labour (or, equivalently, in leisure). Under the same calibration of the parameters, the two models share the same equilibrium paths of output, consumption, and investment, but have different implications for hours worked. Using Bayesian techniques, the authors investigate which of the LBD and habit models fits the U.S. data best. Their results suggest that the habit specification is more strongly supported by the data

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 126.

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Date of creation: 11 Nov 2005
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Handle: RePEc:sce:scecf5:126

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Keywords: Learning-by-doing; Habit Formation; Bayesian Analysis;

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  17. John Geweke, 1999. "Using Simulation Methods for Bayesian Econometric Models," Computing in Economics and Finance 1999 832, Society for Computational Economics.
  18. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  19. Johri, Alok & Letendre, Marc-Andre, 2007. "What do `residuals' from first-order conditions reveal about DGE models?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(8), pages 2744-2773, August.
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