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Learning-by-Doing or Habit Formation?

Author

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  • Hafedh Bouakez
  • Takashi Kano

Abstract

In a recent paper, Chang, Gomes, and Schorfheide (2002) extend the standard real business cycle (RBC) model to allow for a learning-by-doing (LBD) mechanism whereby current labour supply affects future productivity. They show that this feature magnifies the propagation of shocks and improves the matching performance of the standard RBC model. In this paper, the authors show that the LBD model is nearly observationally equivalent to an RBC model with habit formation in labour (or, equivalently, in leisure). Under the same calibration of the parameters, the two models share the same equilibrium paths of output, consumption, and investment, but have different implications for hours worked. Using Bayesian techniques, the authors investigate which of the LBD and habit models fits the U.S. data best. Their results suggest that the habit specification is more strongly supported by the data.

Suggested Citation

  • Hafedh Bouakez & Takashi Kano, 2005. "Learning-by-Doing or Habit Formation?," Staff Working Papers 05-15, Bank of Canada.
    • Handle: RePEc:bca:bocawp:05-15
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    References listed on IDEAS

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    More about this item

    Keywords

    Business fluctuations and cycles; Labour markets; Economic models; Econometric and statistical methods;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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