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Lower-Frequency Macroeconomic Fluctuations: Living Standards and Leisure

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  • Ben Malin

    () (Economics Stanford University)

Abstract

Although it is well known that aggregate variables have slow-moving stochastic components, research on macroeconomic fluctuations has focused primarily on high-frequency movements of the data. I document some interesting lower-frequency facts in U.S. postwar data and investigate whether dynamic stochastic general equilibrium (DSGE) models can explain these facts. One fact of particular interest is that hours worked per capita is negatively correlated with both output per capita and total factor productivity at lower frequencies, in stark contrast to the positive comovement of these three variables at high frequencies. I show that this lower-frequency fact is puzzling for many DSGE models and explore a variety of candidate solutions to the puzzle. I demonstrate that preferences which depend on a time-varying reference level of consumption ("living standards") can rationalize the observed patterns. Finally, I discuss the relative merits of the "living standards" interpretation of the model to other alternatives

Suggested Citation

  • Ben Malin, 2006. "Lower-Frequency Macroeconomic Fluctuations: Living Standards and Leisure," 2006 Meeting Papers 752, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:752
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    References listed on IDEAS

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    Cited by:

    1. Reichling, Felix, 2006. "Optimal Unemployment Insurance in Labor Market Equilibrium when Workers can Self-Insure," MPRA Paper 5362, University Library of Munich, Germany, revised 16 Oct 2007.
    2. Richard A. Ashley. & Randall J. Verbrugge., 2006. "Mis-Specification and Frequency Dependence in a New Keynesian Phillips Curve," Working Papers e06-12, Virginia Polytechnic Institute and State University, Department of Economics.
    3. Nan Li, 2007. "Cyclical Wage Movements in Emerging Markets Compared to Developed Economies: A Contractual Approach," Discussion Papers 06-026, Stanford Institute for Economic Policy Research.

    More about this item

    Keywords

    Aggregate Fluctuations; Lower Frequency; Labor Hours;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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