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Non-stationary Hours in a DSGE Model
2007
Journal of Money, Credit and Banking
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. This paper modifies a stochastic growth model by incorporating permanent labor supply shocks that can generate a unit root in hours worked. Using Bayesian methods we estimate the standard specification in which hours worked are stationary and a modified version with permanent labor supply shocks. If firms can freely adjust labor
doi:10.1111/j.1538-4616.2007.00070.x
fatcat:5pxyhzo6jnamdl4hhv3gx66ffm