What (Really) Accounts for the Fall in Hours After a Technology Shock?

August 1, 2012

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Format: Chicago

Nooman Rebei. What (Really) Accounts for the Fall in Hours After a Technology Shock?, (USA: International Monetary Fund, 2012) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper asks how state of the art DSGE models that account for the conditional response of hours following a positive neutral technology shock compare in a marginal likelihood race. To that end we construct and estimate several competing small-scale DSGE models that extend the standard real business cycle model. In particular, we identify from the literature six different hypotheses that generate the empirically observed decline in worked hours after a positive technology shock. These models alternatively exhibit (i) sticky prices; (ii) firm entry and exit with time to build; (iii) habit in consumption and costly adjustment of investment; (iv) persistence in the permanent technology shocks; (v) labor market friction with procyclical hiring costs; and (vi) Leontief production function with labor-saving technology shocks. In terms of model posterior probabilities, impulse responses, and autocorrelations, the model favored is the one that exhibits habit formation in consumption and investment adjustment costs. A robustness test shows that the sticky price model becomes as competitive as the habit formation and costly adjustment of investment model when sticky wages are included.

Subject: Econometric analysis, Labor, Prices, Real wages, Sticky prices, Structural vector autoregression, Technology

Keywords: Adjustment cost, Bayesian estimation., Firm entry and exit, Habit in consumption, HC model, Impulse-response function, Labor friction model, Labor market frictions, Leontief production, Permanent technology shocks, Production function, Productivity shock, RBC model, Real wages, Standard deviation, Sticky prices, Structural vector autoregression, Technology shock, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/211
Stock No:

WPIEA2012211
ISBN:

9781475505610
ISSN:

1018-5941

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