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Hello everyone,

I have basic RBC model with temporary and permanent shock.(please see attached) I would like to add indivisible labor into the model. Could you please explain to me how i can do it or give me some suggestion where i should look for?
best

Usually you just have to adjust the FOC for labor so that it reflects the linear functional form you assume. You might want to have a look at https://github.com/JohannesPfeifer/DSGE_mod/blob/master/Hansen_1985/Hansen_1985.mod

Dear Johannes,
Thank you very much for your reply. I looked at the codes that you suggest by following the Hansen's article. I built the model and it worked. I found st. dev. and corr. of them with output. I could not understand why the standard deviation of c/y , w/y, y_h/y are the same. I feel that I did a mistake somewhere in the model. Could you please look at my codes and tell me whether i made a mistake somewhere? or these results are okay.
Best,

Table 1 - Moments
sigma(y) 6.89
sigma(c)/sigma(y) 0.49
sigma(h)/sigma(y) 1.38
sigma(i)/sigma(y) 7.74
sigma(w)/sigma(y) 0.49
sigma(y_h)/sigma(y) 0.49
rho(y) 0.07
rho(y,c) -0.66
rho(y,h) 0.97
rho(y,i) 0.97
rho(y,w) -0.66
rho(y,y_h) -0.66

You should think more about what you are modelling. Linear labor implies a linearized FOC of the type

Code: Select all

what=chat

Moreover, the wage is proportional to labor productivity

Code: Select all

w=alpha*y/h

again implying

Code: Select all

what=y_h_hat

Thus, with linear labor the moments should be the same.