Lower-Frequency Macroeconomic Fluctuations: Living Standards and Leisure

Benjamin Andrew Malin ()

No 752, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: 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

Keywords: Aggregate Fluctuations; Lower Frequency; Labor Hours (search for similar items in EconPapers)
JEL-codes: E32 E10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2006-12-03
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