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Learning-by-Doing or Habit Formation?

  • Takashi Kano
  • Hafedh Bouakez

    ()

    (Economics HEC Montreal)

In a recent paper, Chang, Gomes, and Schorfheide (American Economic Review 2002, p. 1498-1520) extend the standard real business cycle (RBC) model to allow for a learning-by-doing (LBD) mechanism whereby current labor 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, we show that the LBD model is nearly observationally equivalent to an RBC model with habit formation in labor (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, we investigate which of the LBD and Habit models fits the U.S. data better. Our results suggest that the Habit specification is more strongly supported by the data. (Copyright: Elsevier)

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Paper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 513.

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Date of creation: 2005
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Handle: RePEc:red:sed005:513
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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