Hidden Bibliographic Details
| Other authors / contributors: | International Monetary Fund. Institute for Capacity Development.
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| ISBN: | 1475580576
9781475580570
1475505612
9781475505610
147555236X
9781475552362
9781475505610
9781475552362
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| Digital file characteristics: | data file
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| Notes: | Title from PDF title page (IMF Web site, viewed Aug. 29, 2012).
"Institute for Capacity Development Department."
"August 2012."
Includes bibliographical references.
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| Summary: | The paper asks how state of the art DSGE models that account for the conditional response of hours following a positive neutral technology shock compare in a marginal likelihood race. To that end we construct and estimate several competing small-scale DSGE models that extend the standard real business cycle model. In particular, we identify from the literature six different hypotheses that generate the empirically observed decline in worked hours after a positive technology shock. These models alternatively exhibit (i) sticky prices; (ii) firm entry and exit with time to build; (iii) habit in consumption and costly adjustment of investment; (iv) persistence in the permanent technology shocks; (v) labor market friction with procyclical hiring costs; and (vi) Leontief production function with labor-saving technology shocks. In terms of model posterior probabilities, impulse responses, and autocorrelations, the model favored is the one that exhibits habit formation in consumption and investment adjustment costs. A robustness test shows that the sticky price model becomes as competitive as the habit formation and costly adjustment of investment model when sticky wages are included.
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