Indivisible labor and the business cycle
TL;DR: In this paper, a growth model with shocks to technology is studied, and it is shown that, unlike previous equilibrium models of the business cycle, this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity.
About: This article is published in Journal of Monetary Economics.The article was published on 1985-11-01 and is currently open access. It has received 2238 citations till now. The article focuses on the topics: Productivity & Real business-cycle theory.
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01 Aug 1990
TL;DR: In this article, the model of balanced growth is used to model the labour market and balance-growth adjustment dynamics, and search intensity and job advertising are modeled as ananlysis of the labor market.
Abstract: Part 1 Unemployment in the model of balanced growth: the labour market long-run equilibrium and balanced growth adjustment dynamics. Part 2 further ananlysis of the labour market: search intensity and job advertising.
3,638 citations
TL;DR: This paper developed a general equilibrium model with sticky prices, credit constraints, nominal loans and asset prices, and found that monetary policy should not target asset prices as a means of reducing output and inflation volatility.
Abstract: I develop a general equilibrium model with sticky prices, credit constraints, nominal loans and asset prices. Changes in asset prices modify agents’ borrowing capacity through collateral value; changes in nominal prices affect real repayments through debt deflation. Monetary policy shocks move asset and nominal prices in the same direction, and are amplified and propagated over time. The “financial accelerator” is not constant across shocks: nominal debt stabilises supply shocks, making the economy less volatile when the central bank controls the interest rate. I discuss the role of equity, debt indexation and household and firm leverage in the propagation mechanism. Finally, I find that monetary policy should not target asset prices as a means of reducing output and inflation volatility.
2,382 citations
Posted Content•
TL;DR: In this article, the authors adopt the Keynesian view that direct shocks to investment are important for business fluctuations, but incorporate them in a neo-classical framework where the rate of capital expenditure is fixed.
Abstract: The present paper adopts the Keynesian view that direct shocks to investment are important for business fluctuations, but incorporates them in a neo-classical framework where the rate of capital ut ...
2,208 citations
TL;DR: In this paper, the authors present the neoclassical model of capital accumulation augmented by choice of labor supply as the basic framework of modern real business cycle analysis and explore the implications of the basic model for perfect foresight capital accumulation and for economic fluctuations initiated by impulses to technology.
1,945 citations
TL;DR: In this paper, the Hodrick-Prescott filter parameter was adjusted by multiplying it with the fourth power of the observation frequency ratios, which yields an HP parameter value of 6.25.
Abstract: This paper studies how the Hodrick-Prescott filter should be adjusted when changing the frequency of observations. It complements the results of Baxter and King (1999) with an analytical analysis, demonstrating that the filter parameter should be adjusted by multiplying it with the fourth power of the observation frequency ratios. This yields an HP parameter value of 6.25 for annual data given a value of 1600 for quarterly data. The relevance of the suggestion is illustrated empirically.
1,909 citations
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TL;DR: In this article, the authors proposed a method to improve the performance of the system by using the information of the user's interaction with the system and the system itself, including the interaction between the two parties.
Abstract: В статье производится анализ агрегированной производственной функции, вводится аппарат, позволяющий различать движение вдоль такой функции от ее сдвигов. На основании сделанных в статье предположений делаются выводы о характере технического прогресса и технологических изменений. Существенное внимание уделяется вариантам применения концепции агрегированной производственной функции.
10,850 citations
TL;DR: In this article, a general equilibrium model is developed and fitted to U.S. quarterly data for the post-war period, with the assumption that more than one time period is required for the construction of new productive capital and the non-time-separable utility function that admits greater intertemporal substitution of leisure.
Abstract: The equilibrium growth model is modified and used to explain the cyclical variances of a set of economic time series, the covariances between real output and the other series, and the autocovariance of output. The model is fitted to quarterly data for the post-war U.S. economy. Crucial features of the model are the assumption that more than one time period is required for the construction of new productive capital, and the non-time-separable utility function that admits greater intertemporal substitution of leisure. The fit is surprisingly good in light of the model's simplicity and the small number of free parameters. THAT WINE IS NOT MADE in a day has long been recognized by economists (e.g., Bdhm-Bawerk [6]). But, neither are ships nor factories built in a day. A thesis of this essay is that the assumption of multiple-period construction is crucial for explaining aggregate fluctuations. A general equilibrium model is developed and fitted to U.S. quarterly data for the post-war period. The co-movements of the fluctuations for the fitted model are quantitatively consistent with the corresponding co-movements for U.S. data. In addition, the serial correlations of cyclical output for the model match well with those observed. Our approach integrates growth and business cycle theory. Like standard growth theory, a representative infinitely-lived household is assumed. As fluctuations in employment are central to the business cycle, the stand-in consumer values not only consumption but also leisure. One very important modification to the standard growth model is that multiple periods are required to build new capital goods and only finished capital goods are part of the productive capital stock. Each stage of production requires a period and utilizes resources. Halffinished ships and factories are not part of the productive capital stock. Section 2 contains a short critique of the commonly used investment technologies, and presents evidence that single-period production, even with adjustment costs, is inadequate. The preference-technology-information structure of the model is presented in Section 3. A crucial feature of preferences is the non-time-separable utility function that admits greater intertemporal substitution of leisure. The exogenous stochastic components in the model are shocks to technology and imperfect indicators of productivity. The two technology shocks differ in their persistence.
5,728 citations
TL;DR: This article defined investment as the act of incurring an immediate cost in the expectation of future rewards, i.e., the payments it must make to extract itself from contractual commitments, including severance payments to labor, are the initial expenditure, and the prospective reward is the reduction in future losses.
Abstract: Economics defines investment as the act of incurring an immediate cost in the expectation of future rewards. Firms that construct plants and install equipment, merchants who lay in a stock of goods for sale, and persons who spend time on vocational education are all investors in this sense. Somewhat less obviously, a firm that shuts down a loss-making plant is also \"investing\": the payments it must make to extract itself from contractual commitments, including severance payments to labor, are the initial expenditure, and the prospective reward is the reduction in future losses.
3,648 citations
"Indivisible labor and the business ..." refers background in this paper
...Lotteries are added to the consumption set (following Rogerson) which makes it possible to study a competitive equilibrium by solving a representative agent problem, as in Lucas and Prescott (1971)....
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TL;DR: In this article, the incorporation of cyclical phenomena into the system of economic equilibrium theory, with which they are in apparent contradiction, remains the crucial problem of Trade Cycle Theory, and the resolution of this question was regarded as one of the main outstanding challenges to economic research.
1,438 citations
"Indivisible labor and the business ..." refers background or result in this paper
...North-Holland INDIVISIBLE LABOR AND THE BUSINESS CYCLE Gary D. HANSEN* Unioersify of California, Santa Barbara, CA 93104, USA A growth model with shocks to technology is studied....
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...Thus, the theory presented here is in principle consistent with the low estimates of this elasticity found from studying panel data [see Altonji (1984) or MaCurdy (1981)]....
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01 Oct 1977
1,016 citations