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Lower-Frequency Macroeconomic Fluctuations: Living Standards and Leisure

  • Ben Malin

    ()

    (Economics Stanford University)

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

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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 752.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:752
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  1. Campbell, John Y., 1994. "Inspecting the mechanism: An analytical approach to the stochastic growth model," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 463-506, June.
  2. Robert J. Barro & Chaipat Sahasakul, 1983. "Measuring the Average Marginal Tax Rates from Social Security and the Individual Income Tax," University of Chicago - George G. Stigler Center for Study of Economy and State 29, Chicago - Center for Study of Economy and State.
  3. Karen A. Kopecky, 2011. "The Trend In Retirement," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(2), pages 287-316, 05.
  4. Barro, Robert J & Sahasakul, Chaipat, 1983. "Measuring the Average Marginal Tax Rate from the Individual Income Tax," The Journal of Business, University of Chicago Press, vol. 56(4), pages 419-52, October.
  5. Jeremy Greenwood & Guillaume Vandenbroucke, 2005. "Hours Worked (Long-Run Trends)," Economie d'Avant Garde Research Reports 10, Economie d'Avant Garde.
  6. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  7. Judd, Kenneth L., 1992. "Projection methods for solving aggregate growth models," Journal of Economic Theory, Elsevier, vol. 58(2), pages 410-452, December.
  8. Kim, Chang-Jin, 1994. "Dynamic linear models with Markov-switching," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 1-22.
  9. Abel, A.B., 1990. "Asset Prices Under Habit Formation And Catching Up With The Joneses," Weiss Center Working Papers 1-90, Wharton School - Weiss Center for International Financial Research.
  10. Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, June.
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