Consumption heterogeneity, employment dynamics and macroeconomic co-movement ¬リニ

Real-business-cycle models rely on total factor productivity (TFP) shocks to explain the observed co-movement between consumption, investment and hours. However an emerging body of evidence identifies “investment shocks”as important drivers of business cycles. This paper shows that a neoclassical model consistent with observed heterogeneity in labor supply and consumption across employed and non-employed, can generate co-movement in response non-TFP shocks. Estimation reveals fluctuations in the marginal effi ciency of investment explain the bulk of business-cycle variance in consumption, investment and hours. A corollary of the model’s empirical success is the labor wedge is not important at business-cycle frequencies. JEL Classifications: E13, E24, E32