NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Elasticities of Substitution in Real Business Cycle Models with Home Production

John Y. Campbell, Sydney Ludvigson

NBER Working Paper No. 6763
Issued in October 1998
NBER Program(s):   EFG

This paper constructs a simple model of home production that demonstrates the connection between the intertemporal elasticity of substitution in market consumption (IES) and the static elasticity of substitution between home and market consumption (SES), when the utility function is additively separable over home and market consumption. Understanding this connection is important because there is a large body of empirical evidence suggesting that the IES is small, but little evidence on the size of the SES. We use our framework to shed light on the properties of a home production model with a low IES. We find that such a model must have two fundamental properties in order to match key aspects of the U.S. aggregate data. First, the steady-state growth rate of technology must be the same across sectors. Second, shocks to technology must be sufficiently positively correlated across sectors.

download in pdf format
   (1356 K)

email paper

This paper is available as PDF (1356 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Published: Campbell, John Y. and Syndney Ludvigson. "Elasticities Of Substitution In Real Business Cycle Models With Home Production," Journal of Money, Credit and Banking, 2001, v33(4,Nov), 847-875.

Users who downloaded this paper also downloaded these:
Gronau w12287 Home Production and the Macro Economy-Some Lessons from Pollak and Wachter and from Transition Russia
Gronau w0137 Leisure, Home Production and Work--The Theory of The Allocation of Time Revisited
Rogerson w14400 Market Work, Home Work and Taxes: A Cross Country Analysis
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us