Are Recessions Good for Your Health? When Ruhm Meets GHH
This paper first documents several important business cycle properties of health status and health expenditures in the US. We find that health expenditures are pro-cyclical while health status is counter-cyclical. We then develop a stochastic dynamic general equilibrium model with endogenous health accumulation. The model has four distinct features: 1) Both medical expenditures and leisure time are used to produce health stock; 2) Health enters into production function; 3) Depreciation rate of health stock negatively depends on working hours; 4) Health enters into utility function. We calibrate the model to US economy. The results show that the model can jointly rationalize the counter-cyclicality of health status and pro-cyclicality of medical expenditure. We also investigate the relative importance of each feature in affecting the business cycle properties of health status. We find that the joint presence of the time channel (feature 1) and the production channel (features 2 and 3) is crucial in replicating counter-cyclicality of health status.
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