Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7348958 | Economics Letters | 2018 | 7 Pages |
Abstract
This note studies a form of a utility function of consumption with habit and leisure that (a) is compatible with long-run balanced growth, (b) hits a steady state observed target for hours worked and (c) is consistent with micro-econometric evidence for the inter-temporal elasticity of substitution and the Frisch elasticity of labor supply. Employing Jaimovich-Rebello preferences our results highlight a constraint on the preference parameter needed to target the steady-state Frisch elasticity. This leads to a lower bound for the latter that cannot be reconciled empirically with external habit, but the introduction of a labor wedge solves the problem. We also propose a dynamic Frisch inverse elasticity measure and examine its business cycle properties.
Keywords
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Economics and Econometrics
Authors
Tom Holden, Paul Levine, Jonathan Swarbrick,