Working Paper: CEPR ID: DP5232
Authors: Yongsung Chang; Taeyoung Doh; Frank Schorfheide
Abstract: 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. Relaxing these restrictions can close the gap between DSGE models and vector autoregressions. This papermodifies a simple stochastic growth model by incorporating permanent labor supply shocks that can generate a unit root in hours worked. Using Bayesian methods we estimate two versions of the DSGE model: the standard specification in which hours worked are stationary and the modified version with permanent labor supply shocks. We find that the data support the latter specification.
Keywords: Bayesian Econometrics; DSGE Models; Nonstationary Hours
JEL Codes: C32; E52; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stationary hours (L97) | hours worked (J22) |
| nonstationary labor supply shocks (J69) | hours worked (J22) |
| labor supply shocks (J20) | productivity (O49) |
| nonstationary model (C22) | better empirical fit (C52) |