The labor market in real business cycle theory

Hansen, Gary D.; Wright, Randall

Journal Article

The labor market in real business cycle theory

Abstract: The standard real business cycle model fails to adequately account for two facts found in the U.S. data: the fact that hours worked fluctuate considerably more than productivity and the fact that the correlation between hours worked and productivity is close to zero. In this paper, in a unified framework, the authors describe and analyze four extensions of the standard model, by introducing nonseparable leisure, indivisible labor, government spending, and household production.

Keywords: Labor market; Business cycles;