Labor productivity and the business cycle: Can R.B.C. models be saved?

Standard R.B.C. models do not enable one to reproduce the main labor market stylized facts: employment is more variable than productivity and average productivity leads the cycle. In order to mimic these features, we consider a model with indivisible labor, labor hoarding and adjustment costs. The m...

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Bibliographic Details
Published in:European economic review 1994-10, Vol.38 (8), p.1581-1594
Main Authors: Fairise, Xavier, Langot, François
Format: Article
Language:English
Subjects:
Adjustment costs
Business cycle
Business cycles
Business forecasts
Economic models
Employment
Equilibrium models
Expenditures
Government spending
Labor adjustment costs
Labor force
Labor hoarding
Labor market
Labor productivity
Labor productivity cycle
Labour productivity
Market equilibrium
Productivity
Quantitative Finance
Studies
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Summary:Standard R.B.C. models do not enable one to reproduce the main labor market stylized facts: employment is more variable than productivity and average productivity leads the cycle. In order to mimic these features, we consider a model with indivisible labor, labor hoarding and adjustment costs. The model is then simulated and compared to U.S. stylized facts. We show that government expenditure shock and some specific labor adjustment costs are necessary to explain the lead of the average productivity over the business cycle.
ISSN:0014-2921
1873-572X
DOI:10.1016/0014-2921(94)90028-0