Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/197879 
Year of Publication: 
2018
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2018-26
Publisher: 
Bank of Canada, Ottawa
Abstract: 
This note studies a form of a utility function of consumption with habit and leisure that (a) is compatible with long-run balanced growth, (b) hits a steady-state observed target for hours worked and (c) is consistent with micro-econometric evidence for the inter-temporal elasticity of substitution and the Frisch elasticity of labor supply. We employ Jaimovich-Rebello preferences, and our results highlight a constraint on the preference parameter needed to target the steady-state Frisch elasticity. This leads to a lower bound for the latter that cannot be reconciled empirically with external habit, but the introduction of a labor wedge solves the problem. We also propose a dynamic Frisch inverse elasticity measure and examine its business cycle properties.
Subjects: 
Economic models
Business fluctuations and cycles
Labour markets
JEL: 
E21
E24
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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