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RBC Models and the Hours-Wages Puzzle: Puzzle Solved!

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  • Vasilev, Aleksandar

Abstract

This paper shows that a modified real business cycle (RBC) model, one that includes home production and fiscal spending shocks, can solve one of the RBC puzzles and generates zero correlation between wages and hours. In addition, the micro-founded model presented here provides a sound theoretical model to analyze fiscal policy in a neoclassical framework and is able to capture many aspects of the data that the benchmark RBC model was missing.

Suggested Citation

  • Vasilev, Aleksandar, 2015. "RBC Models and the Hours-Wages Puzzle: Puzzle Solved!," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 41, pages 117-130.
    • Handle: RePEc:zbw:espost:142147
    DOI: 10.17451/eko/41/2015/108
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    1. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-1187, December.
    2. Aleksandar Vasilev, 2017. "Us Health And Aggregate Fluctuations," Bulletin of Economic Research, Wiley Blackwell, vol. 69(2), pages 147-163, April.
    3. 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.
    4. Alice Albonico & Sarantis Kalyvitis & Evi Pappa, 2012. "Revisiting the “Productivity-Hours Puzzle” in the RBC Paradigm: The Role of Investment Adjustment Costs," Quaderni di Dipartimento 164, University of Pavia, Department of Economics and Quantitative Methods.
    5. Bornukova, Kateryna, 2009. "Real Business Cycles in The Model with Two-Person Household and Home Production," MPRA Paper 25113, University Library of Munich, Germany.
    6. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    7. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
    8. Vasilev, Aleksandar, 2016. "Aggregation with a mix of indivisible and continuous labor supply decisions: the case of home production," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 43(12), pages 1507-1512.
    9. McGrattan, Ellen R & Rogerson, Richard & Wright, Randall, 1997. "An Equilibrium Model of the Business Cycle with Household Production and Fiscal Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 267-290, May.
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    Cited by:

    1. Aleksandar VASILEV, 2017. "Aggregation With Sequential Indivisible And Continuous Labor Supply Decisions And An Informal Sector," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 8(2), pages 144-148.

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    More about this item

    Keywords

    fiscal policy; home production; government spending shock; indivisible labor;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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