Real Business Cycles in The Model with Two-Person Household and Home Production

Kateryna Bornukova

No 12, BEROC Working Paper Series from Belarusian Economic Research and Outreach Center (BEROC)

Abstract: In the U.S. economy hours and productivity are negatively correlated, and volatility of hours is two times higher than volatility of productivity. In the standard one shock RBC model hours are positively correlated with productivity, and hours are two times less volatile than productivity. This paper is an attempt to replicate the co-movement of hours and productivity observed in the post-war U.S. data using one shock model. I explore the real business cycles in the model with two-person household and home production. The model economy has a representative household of two agents. Agents allocate their time among leisure, work on the market and home production. There is a fixed cost of working on the market, and agents may choose not to work. The fluctuations in the model are driven by aggregate technology shock. I calibrate the model to U.S. data, solve and simulate it. I find that in the model hours are 2 times more volatile than productivity, and that hours and productivity are negatively correlated. The model replicates well the co-movement of hours and productivity observed in the U.S. data.

Keywords: Business Cycles; Home Production; Labor Supply (search for similar items in EconPapers)
JEL-codes: C68 E24 E32 J22 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2011-05, Revised 2011-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Real Business Cycles in The Model with Two-Person Household and Home Production (2009)
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