Reconciling Jaimovich–Rebello preferences, habit in consumption and labor supply

Tom Holden, Paul Levine () and Jonathan Swarbrick

Economics Letters, 2018, vol. 168, issue C, 132-137

Abstract: This note studies a form of a utility function of consumption with habit and leisure that (a) is compatible with long-run balanced growth, (b) hits a steady state observed target for hours worked and (c) is consistent with micro-econometric evidence for the inter-temporal elasticity of substitution and the Frisch elasticity of labor supply. Employing Jaimovich–Rebello preferences our results highlight a constraint on the preference parameter needed to target the steady-state Frisch elasticity. This leads to a lower bound for the latter that cannot be reconciled empirically with external habit, but the introduction of a labor wedge solves the problem. We also propose a dynamic Frisch inverse elasticity measure and examine its business cycle properties.

Keywords: Jaimovich–Rebello preferences; Habit in consumption; Labor supply; Dynamic Frisch elasticity; Labor wedge (search for similar items in EconPapers)
JEL-codes: E21 E24 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Reconciling Jaimovich-Rebelo Preferences, Habit in Consumption and Labor Supply (2018)
Working Paper: Reconciling Jaimovich-Rebello Preferences, Habit in Consumption and Labor Supply (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:168:y:2018:i:c:p:132-137

DOI: 10.1016/j.econlet.2018.04.013

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