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Correlation of working hours and interest rate

Correlation of working hours and interest rate

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Recent studies show that the estimated parameters of rational expectations dynamic stochastic general equilibrium models of the business cycle are largely time-varying. This paper shows that assuming adaptive learning (rather than rational expectations) strongly reduces the estimated parameter variability of standard models (by around 75%). Moreove...

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... the correlation between the nominal interest rate and hours worked, all models reproduce well the strong dynamic swing since the early 1980's as depicted in Figure 4, but AL appears to perform slightly better than RE in fitting this striking comovement pattern. ...

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... 11 The prior distribution of the structural parameters estimated is the same as in Smets and Wouters (2007). The prior distributions of all 8 Recent papers (Wu and Zhang, 2019;Mouabbi and Sahuc, 2019;Aguirre and Vázquez, 2020) use the shadow rate instead of the federal funds rate in the estimation of New-Keynesian frameworks. The estimation exercise was also conducted with the Fed funds rate, and analogous results were obtained, showing its robustness. ...
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