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Real Business Cycles in The Model with Two-Person Household and Home Production


  • Bornukova, Kateryna


In the U.S. economy hours and productivity are negatively correlated, and volatility of hours is two times higher than volatility of productivity. In the standard one shock RBC model hours are positively correlated with productivity, and hours are two times less volatile than productivity. This paper is an attempt to replicate the co-movement of hours and productivity observed in the post-war U.S. data using one shock model. I explore the real business cycles in the model with two-person household and home production.} The model economy has a representative household of two agents. Agents allocate their time among leisure, work on the market and home production. There is a fixed cost of working on the market, and agents may choose not to work. The fluctuations in the model are driven by aggregate technology shock. I calibrate the model to U.S. data, solve and simulate it. I find that in the model hours are 2 times more volatile than productivity, and that hours and productivity are negatively correlated. The model replicates well the co-movement of hours and productivity observed in the U.S. data.

Suggested Citation

  • Bornukova, Kateryna, 2009. "Real Business Cycles in The Model with Two-Person Household and Home Production," MPRA Paper 25113, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:25113

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    References listed on IDEAS

    1. Greenwood, Jeremy & Hercowitz, Zvi, 1991. "The Allocation of Capital and Time over the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1188-1214, December.
    2. S. Rebelo., 2010. "Real Business Cycle Models: Past, Present, and Future," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 10.
    3. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    4. 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.
    5. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    6. Jeremy Greenwood & Nezih Guner, 2009. "Marriage and Divorce since World War II: Analyzing the Role of Technological Progress on the Formation of Households," NBER Chapters,in: NBER Macroeconomics Annual 2008, Volume 23, pages 231-276 National Bureau of Economic Research, Inc.
    7. 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.
    8. Cho, Jang-Ok & Rogerson, Richard, 1988. "Family labor supply and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 233-245.
    9. Ingram, Beth F. & Kocherlakota, Narayana R. & Savin, N. E., 1997. "Using theory for measurement: An analysis of the cyclical behavior of home production," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 435-456, December.
    10. Javier DÎaz-GimÊnez, 1997. "Uninsured idiosyncratic risk, liquidity constraints and aggregate fluctuations," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 10(3), pages 463-482.
    11. Gomme, Paul & Rupert, Peter, 2007. "Theory, measurement and calibration of macroeconomic models," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 460-497, March.
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    Cited by:

    1. Kateryna Bornukova, 2015. "Accounting for Labor Productivity Puzzle," BEROC Working Paper Series 26, Belarusian Economic Research and Outreach Center (BEROC).
    2. Aleksandar Vasilev, 2015. "RBC Models and the Hours-Wages Puzzle: Puzzle Solved!," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 41.

    More about this item


    Computable General Equilibrium; Business Cycles; Home Production; Labor Supply;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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