Non-stationary Hours in a DSGE Model

Yongsung Chang (), Taeyoung Doh () and Frank Schorfheide ()

No 5232, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The time series fit of dynamic stochastic general equilibrium (DSGE) models often suffers from restrictions on the long-run dynamics that are at odds with the data. Relaxing these restrictions can close the gap between DSGE models and vector autoregressions. This paper modifies a simple stochastic growth model by incorporating permanent labor supply shocks that can generate a unit root in hours worked. Using Bayesian methods we estimate two versions of the DSGE model: the standard specification in which hours worked are stationary and the modified version with permanent labor supply shocks. We find that the data support the latter specification.

Keywords: Bayesian econometrics; DSGE models; non-stationary hours (search for similar items in EconPapers)
JEL-codes: C32 E52 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ets and nep-mac
Date: 2005-09
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Working Paper: Non-stationary hours in a DSGE model (2006)
Journal Article: Non-stationary Hours in a DSGE Model (2007)
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