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Testing between Competing Models of Real Business Cycles

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  • Osano, Hiroshi
  • Inoue, Tohru

Abstract

This paper tests a real business cycle model with efficient long-term labor contracts (the efficient long-term contract model) against a standard real business cycle model (the intertemporal substitution model). In the former model, employment and real wages are determined by bilateral dynamic bargaining between firms and workers. In the latter model, employment and real wages are determined instead by the dynamic optimization of households within the competitive market framework. The authors estimate each model using aggregate Japanese data. Their results show that the data are consistent with the efficient long-term contract model, but are inconsistent with the intertemporal substitution model. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Osano, Hiroshi & Inoue, Tohru, 1991. "Testing between Competing Models of Real Business Cycles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 669-688, August.
    • Handle: RePEc:ier:iecrev:v:32:y:1991:i:3:p:669-88
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    Citations

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    Cited by:

    1. de la Croix, David & Palm, Franz C. & Pfann, Gerard A., 1996. "A dynamic contracting model for wages and employment in three European economies," European Economic Review, Elsevier, vol. 40(2), pages 429-448, February.
    2. Kuroda, Sachiko & Yamamoto, Isamu, 2008. "Estimating Frisch labor supply elasticity in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 22(4), pages 566-585, December.
    3. Yamada, Ken, 2011. "Labor supply responses to the 1990s Japanese tax reforms," Labour Economics, Elsevier, vol. 18(4), pages 539-546, August.
    4. Otrok Christopher & Pourpourides Panayiotis M., 2019. "On the cyclicality of real wages and wage differentials," The B.E. Journal of Macroeconomics, De Gruyter, vol. 19(1), pages 1-18, January.
    5. Irina Khvostova & Alexander Larin & Anna Novak, 2016. "Euler Equation with Habits and Measurement Errors: Estimates on Russian Micro Data," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 63(4), pages 395-409.
    6. John C. Ham & Kevin T. Reilly, 2002. "Testing Intertemporal Substitution, Implicit Contracts, and Hours Restriction Models of the Labor Market Using Micro Data," American Economic Review, American Economic Association, vol. 92(4), pages 905-927, September.
    7. Fagnart, Jean-François & De La Croix, David, 1993. "Underemployment of labour and equipment in a bargaining model with forward-looking behavior," CEPREMAP Working Papers (Couverture Orange) 9315, CEPREMAP.
    8. John C. Ham & Kevin T. Reilly, 2013. "Implicit Contracts, Life Cycle Labor Supply, And Intertemporal Substitution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 1133-1158, November.
    9. de la Croix, David & Fagnart, Jean-Francois, 1995. "Underemployment of production factors in a forward-looking model," Labour Economics, Elsevier, vol. 2(2), pages 131-159, June.
    10. Julian Thimme, 2017. "Intertemporal Substitution In Consumption: A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 226-257, February.
    11. John C. Ham & Kevin T. Reilly, 2013. "Implicit Contracts, Life Cycle Labor Supply, And Intertemporal Substitution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(4), pages 1133-1158, November.

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