Reconciling Jaimovich-Rebelo Preferences, Habit in Consumption and Labor Supply
Tom Holden (),
Paul Levine () and
Jonathan Swarbrick ()
Staff Working Papers from Bank of Canada
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. We employ Jaimovich- Rebello preferences, and 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: Econometric and statistical methods; Inflation and prices (search for similar items in EconPapers)
JEL-codes: E21 E24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-upt
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Journal Article: Reconciling Jaimovich–Rebello 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:bca:bocawp:18-26
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