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
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
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Journal Article: Non-stationary Hours in a DSGE Model (2007)
Working Paper: Non-stationary hours in a DSGE model (2006)
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