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Labor Hoarding and the Business Cycle

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  • Burnside, Craig
  • Eichenbaum, Martin
  • Rebelo, Sergio

Abstract

This paper investigates the sensitivity of Solow residual based measures of technology shocks to labor-hoarding behavior. Using a structural model of labor hoarding and the identifying restriction that innovations to technology shocks are orthogonal to innovations in government consumption, the authors estimate the fraction of the variability of the Solow residual that is due to technology shocks. Their results support the view that a significant proportion of movements in the Solow residual are artifa cts of labor-hoarding behavior. Specifically, the authors estimate that the variance of innovations to technology is roughly 50 percent less than that implied by standard real business cycle models. Copyright 1993 by University of Chicago Press.

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  • Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1993. "Labor Hoarding and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 245-273, April.
  • Handle: RePEc:ucp:jpolec:v:101:y:1993:i:2:p:245-73
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    References listed on IDEAS

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    1. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 11-44, January.
    2. Lawrence J. Christiano, 1987. "Why is consumption less volatile than income?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-20.
    3. Julio J. Rotemberg & Lawrence H. Summers, 1988. "Labor Hoarding, Inflexible Prices, and Procyclical Productivity," NBER Working Papers 2591, National Bureau of Economic Research, Inc.
    4. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-450, June.
    5. Eichenbaum, Martin & Hansen, Lars Peter, 1990. "Estimating Models with Intertemporal Substitution Using Aggregate Time Series Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 53-69, January.
    6. Evans, Charles L., 1992. "Productivity shocks and real business cycles," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 191-208, April.
    7. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
    8. Robert J. Gordon, 1979. "The "End-of-Expansion" Phenomenon in Short-Run Productivity Behavior," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(2), pages 447-462.
    9. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-947, October.
    10. Jess Benhabib & Randall Wright & Richard Rogerson, 1990. "Homework in Macoreconomics I: Basic Theory (Part I of II)," NBER Working Papers 3344, National Bureau of Economic Research, Inc.
    11. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-334, June.
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