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The Great Vacation Effect is what I term one well-known pathological side effect of almost all macro dynamic stochastic general equilibrium (DSGE) models: since employment hours are a voluntary decision in the household optimisation problem the direct implication that unemployment is voluntary as well. As such, The Great Depression can be interpreted as The Great Vacation. Although this silliness is well known, the silliness has nasty side effects for recession analysis. This article continues the discussion of the previous part, turning to the question of why this effect matters even if we suspend disbelief with respect to the interpretation of unemployment....Bond Economics The Great Vacation: Recessions In DSGE Models (Part II)Brian Romanchuk
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The Great Vacation Effect is what I term one well-known pathological side effect of almost all macro dynamic stochastic general equilibrium (DSGE) models: since employment hours are a voluntary decision in the household optimisation problem the direct implication that unemployment is voluntary as well. As such, The Great Depression can be interpreted as The Great Vacation. Although this silliness is well known, the silliness has nasty side effects for recession analysis. This article continues the discussion of the previous part, turning to the question of why this effect matters even if we suspend disbelief with respect to the interpretation of unemployment....Bond Economics The Great Vacation: Recessions In DSGE Models (Part II)Brian Romanchuk
Topics:
Mike Norman considers the following as important:
This could be interesting, too:
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The Great Vacation Effect is what I term one well-known pathological side effect of almost all macro dynamic stochastic general equilibrium (DSGE) models: since employment hours are a voluntary decision in the household optimisation problem the direct implication that unemployment is voluntary as well. As such, The Great Depression can be interpreted as The Great Vacation. Although this silliness is well known, the silliness has nasty side effects for recession analysis. This article continues the discussion of the previous part, turning to the question of why this effect matters even if we suspend disbelief with respect to the interpretation of unemployment....Bond Economics
The Great Vacation: Recessions In DSGE Models (Part II)
Brian Romanchuk