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Discussion Paper Details

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Title: Non-stationary Hours in a DSGE Model

Author(s): Yongsung Chang, Taeyoung Doh and Frank Schorfheide

Publication Date: September 2005

Keyword(s): Bayesian econometrics, DSGE models and non-stationary hours

Programme Area(s): International Macroeconomics

Abstract: 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.

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Bibliographic Reference

Chang, Y, Doh, T and Schorfheide, F. 2005. 'Non-stationary Hours in a DSGE Model'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5232