02241cas a2200241 a 4500 AALejournalIMF012121 230101c9999 xx r poo 0 0eng d 5.00 USD 9781475505610 1018-5941 BD-DhAAL BD-DhAAL Rebei, Nooman. What (Really) Accounts for the Fall in Hours After a Technology Shock? / Nooman Rebei. Washington, D.C. : International Monetary Fund, 2012. 1 online resource (41 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students The paper asks how state of the art DSGE models that account for the conditional response of hours following a positive neutral technology shock compare in a marginal likelihood race. To that end we construct and estimate several competing small-scale DSGE models that extend the standard real business cycle model. In particular, we identify from the literature six different hypotheses that generate the empirically observed decline in worked hours after a positive technology shock. These models alternatively exhibit (i) sticky prices; (ii) firm entry and exit with time to build; (iii) habit in consumption and costly adjustment of investment; (iv) persistence in the permanent technology shocks; (v) labor market friction with procyclical hiring costs; and (vi) Leontief production function with labor-saving technology shocks. In terms of model posterior probabilities, impulse responses, and autocorrelations, the model favored is the one that exhibits habit formation in consumption and investment adjustment costs. A robustness test shows that the sticky price model becomes as competitive as the habit formation and costly adjustment of investment model when sticky wages are included. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2012/211 Full text available on IMF http://elibrary.imf.org/view/journals/001/2012/211/001.2012.issue-211-en.xml IMF e-Library