Report
Non-convexities in quantitative general equilibrium studies of business cycles
Abstract: This paper reviews the role of micro non-convexities in the study of business cycles. One important non-convexity arises because an individual can work only one workweek length in a given week. The implication of this non-convexity is that the aggregate intertemporal elasticity of labor supply is large and the principal margin of adjustment is in the number employed-not in the hours per person employed-as observed. The paper also reviews a business cycle model with an occasionally binding capacity constraint. This model better mimics business cycle fluctuations than the standard real business cycle model. Aggregation in the presence of micro non-convexities is key in the model.
Keywords: Labor supply; Econometric models; Equilibrium (Economics); Business cycles;
Access Documents
File(s): File format is application/pdf http://minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=952
Authors
Bibliographic Information
Provider: Federal Reserve Bank of Minneapolis
Part of Series: Staff Report
Publication Date: 2003
Number: 312