What do ‘residuals’ from first-order conditions reveal about DGE models?

Johri, Alok; Letendre, Marc‐André

doi:10.1016/j.jedc.2006.09.008

Cited by 14 publications

(14 citation statements)

References 52 publications

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“…By constructing and analyzing residuals from first-order conditions for labor,Johri and Letendre (2004) show that static first-order conditions are inconsistent with U.S. data, and that dynamic terms are needed to explain the data successfully.…”

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confidence: 98%

“…That is, the competitive wage rate is always equal to market wage rate for the efficiency unit of labor 11. For 10 See Schorfheide (2000) for a detailed discussion of these loss functions and their interpretations 11. This, of course, does not imply that past hours of work do not affect the competitive wage rate in equilibrium.…”

mentioning

confidence: 99%

“…In the Habit model, the habit stock, X t , does not affect directly the marginal product of labor (the wage rate). That is, the competitive wage rate is always equal to market wage rate for the efficiency unit of labor 11. For 10 See Schorfheide (2000) for a detailed discussion of these loss functions and their interpretations 11.…”

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confidence: 99%

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Learning-by-doing or habit formation?

Bouakez

Kano

2006

Review of Economic Dynamics

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In a recent paper, Chang, Gomes, and Schorfheide (American Economic Review 2002, p. 1498-1520 extend the standard real business cycle (RBC) model to allow for a learning-bydoing (LBD) mechanism whereby current labor supply affects future productivity. They show that this feature magnifies the propagation of shocks and improves the matching performance of the standard RBC model. In this paper, we show that the LBD model is nearly observationally equivalent to an RBC model with habit formation in labor (or, equivalently, in leisure). Under the same calibration of the parameters, the two models share the same equilibrium paths of output, consumption, and investment, but have different implications for hours worked. Using Bayesian techniques, we investigate which of the LBD and Habit models fits the U.S. data better. Our results suggest that the Habit specification is more strongly supported by the data.JEL classification: C52, E32, J22

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confidence: 98%

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confidence: 99%

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Learning-by-doing or habit formation?

Bouakez

Kano

2006

Review of Economic Dynamics

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“…That is, the competitive wage rate is always equal to market wage rate for the efficiency unit of labor. 11 For this reason, the priors obtained from the micro-level data, albeit sensible for the LBD model, might not be appropriate for the Habit model. To address this issue, we repeat the analysis carried out in Section 4 using non-informative priors for the parameters φ and µ.…”

Section: Robustness Analysismentioning

confidence: 99%

“…SeeSchorfheide (2000) for a detailed discussion of these loss functions and their interpretations 11. This, of course, does not imply that past hours of work do not affect the competitive wage rate in equilibrium.…”

mentioning

confidence: 99%

Learning-By-Doing or Habit Formation?

Bouakez

Kano

2005

SSRN Journal

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In a recent paper, Chang, Gomes, and Schorfheide (American Economic Review 2002, p. 1498-1520) extend the standard real business cycle (RBC) model to allow for a learning-bydoing (LBD) mechanism whereby current labor supply affects future productivity. They show that this feature magnifies the propagation of shocks and improves the matching performance of the standard RBC model. In this paper, we show that the LBD model is nearly observationally equivalent to an RBC model with habit formation in labor (or, equivalently, in leisure). Under the same calibration of the parameters, the two models share the same equilibrium paths of output, consumption, and investment, but have different implications for hours worked. Using Bayesian techniques, we investigate which of the LBD and Habit models fits the U.S. data better. Our results suggest that the Habit specification is more strongly supported by the data.

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Organizational capital and the international co-movement of investment

Johri

Letendre

Luo

2011

Journal of Macroeconomics

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A productivity shock leads to a large international transfer of capital and negative comovement of investment in the typical two-country real business cycle model. Most recent models that attempt to reduce or remove this transfer produce unrealistically low investment volatility. We show that adding organizational capital to the technological environment of a relatively standard international business cycle model can ameliorate this problem. In addition we show that GHH preferences along with the above modification are sufficient to deliver positive crosscountry correlations of consumption, hours, output and investment.

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What do ‘residuals’ from first-order conditions reveal about DGE models?

Cited by 14 publications

References 52 publications

Learning-by-doing or habit formation?

Learning-by-doing or habit formation?

Learning-By-Doing or Habit Formation?

Organizational capital and the international co-movement of investment

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