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Non-Separability, Heterogeneous Labor Supply, Investment, and the Business Cycle

Author

Listed:
  • Pablo A. Guerron

    (Department of Economics, North Carolina State University)

Abstract

I study the effects of a monetary shock in an economy characterized by heterogenous labor schedules and non-separability between consumption and labor in the utility function. To that end, I develop a simple method to deal with household heterogeneity arising from wealth differentials. Compared to competing models in the literature, the estimated version of my model fits better the responses of output, consumption, and wages after a monetary shock. Notably, my model requires no adjustment cost in investment, and smaller degrees of habit formation preference for consumption, and wage stickiness than other standard models. Furthermore, I show that non-separability is an important source of amplification of the effects of a monetary shock on output and investment.

Suggested Citation

  • Pablo A. Guerron, 2006. "Non-Separability, Heterogeneous Labor Supply, Investment, and the Business Cycle," Working Paper Series 005, North Carolina State University, Department of Economics, revised Aug 2006.
    • Handle: RePEc:ncs:wpaper:005
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    More about this item

    Keywords

    Heterogeneous Choices; Impulse Responses; Monetary Policy;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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