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How different is the cyclical behavior of home production across countries?

  • William Blankenau and M. Ayhan Kose

Household production plays an important role in aggregate economic activity. It constitutes between 20 and 50 percent of the value of gross national product in several industrialized countries. We study cross-country differences and similarities in the dynamic behavior of production activities at home. Specifically, we examine the stylized business cycle features of household production in the G7 countries. We address the following questions. First, what are the time series properties of hours worked in the home sector, hours spent in leisure, and the consumption of home-produced goods? Second, what are the cross-country comovement properties of fluctuations in household production? Third, are existing stochastic dynamic business cycle models able to replicate the business cycle features of household production data implied by our methodology? Using a stochastic dynamic business cycle model which incorporates a household production sector, we generate quarterly data on hours worked in the home sector, hours spent in leisure, and the consumption of home-produced goods. Our methodology closely follows that of Ingram, Kocherlakota, and Savin (1997, Journal of Monetary Economics). In particular, we use the model?s Euler equations and the observable data on the model?s endogenous variables regarding the market production and hours to recover the data series on household production and leisure. We find that leisure is countercylical while nonmarket hours are acyclical in all countries. Cross-country correlations of leisure and non-market production are low, and in most cases, are much smaller than those of output. We compare the business cycle features of home production in existing closed and open economy business cycle models with those of our data. Moment implications of existing business cycle models heavily rely on the features of the productivity shocks in the non-market sector. Our results suggest that these models are able to capture some of the features of business cycles in household production.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2001 with number 117.

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Date of creation: 01 Apr 2001
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Handle: RePEc:sce:scecf1:117
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  10. Bonke, Jens, 1992. "Distribution of Economic Resources: Implications of Including Household Production," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 38(3), pages 281-93, September.
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  12. Peter Rupert & Richard Rogerson & Randall Wright, 1994. "Estimating substitution elasticities in household production models," Staff Report 186, Federal Reserve Bank of Minneapolis.
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  19. Kose, M. Ayhan, 2002. "Explaining business cycles in small open economies: 'How much do world prices matter?'," Journal of International Economics, Elsevier, vol. 56(2), pages 299-327, March.
  20. Jeffrey M. Wrase, 2001. "The interplay between home production and business activity," Business Review, Federal Reserve Bank of Philadelphia, issue Q2, pages 23-29.
  21. McGrattan, Ellen R & Rogerson, Richard & Wright, Randall, 1997. "An Equilibrium Model of the Business Cycle with Household Production and Fiscal Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 267-90, May.
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  23. Reuben Gronau & Daniel S. Hamermesh, 2006. "Time Vs. Goods: The Value Of Measuring Household Production Technologies," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 52(1), pages 1-16, 03.
  24. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
  25. Stephen L. Parente & Richard Rogerson & Randall Wright, 2000. "Homework in Development Economics: Household Production and the Wealth of Nations," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 680-687, August.
  26. M. Ayhan Kose & Kei-Mu Yi, 2001. "International Trade and Business Cycles: Is Vertical Specialization the Missing Link?," American Economic Review, American Economic Association, vol. 91(2), pages 371-375, May.
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