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An Equilibrium Model of the Business Cycle with Household Production and Fiscal Policy

Ellen R. McGrattan, Richard Rogerson and Randall Wright
International Economic Review
Vol. 38, No. 2 (May, 1997), pp. 267-290
DOI: 10.2307/2527375
Stable URL: http://www.jstor.org/stable/2527375
Page Count: 24
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
An Equilibrium Model of the Business Cycle with Household Production and Fiscal Policy
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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.

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