¶ An equilibrium model of the business cycle with household production and fiscal policy

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¶ BibTeX

@article{mcgrattan1997equilibrium,
  title={An equilibrium model of the business cycle with household production and fiscal policy},
  author={McGrattan, Ellen R and Rogerson, Richard and Wright, Randall},
  journal={International Economic Review},
  pages={267--290},
  year={1997},
  publisher={JSTOR}
}

¶ Abstract

We estimate a dynamic general equilibrium model of the U.S. economy that includes an explicit household production sector and stochastic fiscal variables. We use our estimates to investigate two issues. First, we analyze how well the model accounts for aggregate fluctuations. We find that household production has a significant impact and reject a nested specification in which changes in the home production technology do not matter for market variables. Second, we study the effects of some simple fiscal policy experiments and show that the model generates different predictions for the effects of tax changes than similar models without home production.

¶ My Notes

Very good example for teaching. Not only is the model a relatively small extension of what we have in class, but much of the notation is the same as well. $h$ for time, $l$ for leisure, etc.

Data on the market side of things is all just aggregates. Data on the household production side of things is not observed.