The Role of Consumption-Labor Complementarity as a Source of Macroeconomic Instability

Baruch Gliksberg

No WP2010/3, Working Papers from University of Haifa, Department of Economics

Abstract: The equilibrium ramification of a balanced budget rule are scrutinized in a one sector growth model augmented with investment frictions and a non-separable utility function in consumption and leisure. Edgeworth-complementarity between consumption and labor is formulated so as to generate a positive co-movement of consumption, output, and hours worked, as found in the data. Calibration of the model to the U.S. economy provides evidence that a balanced budget rule with a Taylor type monetary policy induce determinate equilibria.

Keywords: Fiscal-Monetary policy; Non-Separable Utility; Consumption-Labor Complementarity; Endogenous Labor; Stabilization; Determinacy; Investment (search for similar items in EconPapers)
JEL-codes: C62 C63 E4 E52 E61 E62 E63 (search for similar items in EconPapers)
Pages: 24
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