1

Solving the Labor Market Puzzles

Lectures 4 and 5

2

The indivisible hours assumptions (based on Hansen 85 and Rogerson 88) Expected utility in period t is given by:

 

Calibration:

t

utt

ett

utt

ettt

BHCC

AChACU

)log()1()log(

)1log()log()1()1log()log( 0

3

Quantitative assessment

4

Shock on public expenditures

(based on Christiano and Eichenbaum 92) Utility function

Calibration

)log()log(),,( tttttt GCGCU

5

Quantitative assessment

6

Shock on preferences (based on Baxter and King 91)

Utility function

Equilibrium on the goods market

)log()log(),,( tttttt CCU

tttt YYIC

7

Impulse response to a preference shock

8

Quantitative assessment

9

Labor hoarding

10

Response to a positive technological shock

11

Response to a positive government expenditure shock

12

Quantitative assessment

Selected second moments