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Learning-by-Doing or Habit Formation?

Listed author(s):
  • Hafedh Bouakez
  • Takashi Kano

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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File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp05-15.pdf
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Paper provided by Bank of Canada in its series Staff Working Papers with number 05-15.

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Length: 31 pages
Date of creation: 2005
Handle: RePEc:bca:bocawp:05-15
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  1. repec:wop:calsdi:97-23 is not listed on IDEAS
  2. Martin Lettau & Harald Uhlig, 2000. "Can Habit Formation be Reconciled with Business Cycle Facts?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 79-99, January.
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  4. Chang, Yongsung & Gomes, Joao F & Schorfheide, Frank, 2002. "Learning by Doing as a Propagation Mechanism," CEPR Discussion Papers 3599, C.E.P.R. Discussion Papers.
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  17. Timothy Cogley & James M. Nason, 1993. "Output dynamics in real business cycle models," Working Papers in Applied Economic Theory 93-10, Federal Reserve Bank of San Francisco.
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