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The Role of Consumption-Labor Complementarity as a Source of Macroeconomic Instability

  • Gliksberg, Baruch
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    The equilibrium ramification of a balanced budget rule are scrutinized in a one sector growth model augmented with investment frictions and a non-separable utility function in consumption and leisure. Edgeworth-complementarity between consumption and labor is formulated so as to generate a positive co-movement of consumption, output, and hours worked, as found in the data. Calibration of the model to the U.S. economy provides evidence that a balanced budget rule with a Taylor type monetary policy induce determinate equilibria.

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    File URL: https://mpra.ub.uni-muenchen.de/24816/1/MPRA_paper_24816.pdf
    File Function: original version
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24816.

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    Date of creation: Jun 2010
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    Handle: RePEc:pra:mprapa:24816
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    1. Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 1999. "Monetary Policy and Multiple Equilibria," Departmental Working Papers 199914, Rutgers University, Department of Economics.
    2. Miles S. Kimball & Matthew D. Shapiro, 2008. "Labor Supply: Are the Income and Substitution Effects Both Large or Both Small?," NBER Working Papers 14208, National Bureau of Economic Research, Inc.
    3. Dupor, Bill, 2001. "Investment and Interest Rate Policy," Journal of Economic Theory, Elsevier, vol. 98(1), pages 85-113, May.
    4. 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.
    5. Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Avoiding Liquidity Traps," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 535-563, June.
    6. George W. Evans & Roger Guesnerie, 2003. "Coordination on Saddle-Path Solutions: The Eductive Viewpoint -- Linear Multivariate Models," University of Oregon Economics Department Working Papers 2003-28, University of Oregon Economics Department, revised 25 Jan 2005.
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