How Does Labor Supply Shock Affect Aggregate Fluctuations——An Endogenous Capital Share Perspective
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| Title | How Does Labor Supply Shock Affect Aggregate Fluctuations——An Endogenous Capital Share Perspective
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| Author | Jianfeng Liu, Zhiwei Xu, Shangfeng Zhang and Yingli Pan |
| Organization | Shanghai Jiao Tong University；Zhejiang Gongshang University |
| Email | jfliu76@sjtu.edu.cn；xuzhiwei@sjtu.edu.cn；zhshangfeng@163.com；panyl@sjtu.edu.cn |
| Key Words | Endogenous Factor Share; Labor Supply Shock; China’s Business Cycles |
| Abstract | The fluctuation in labor supply is one of the most important considerations when the firms make their decisions of adopting production technology with different factor shares. This paper incorporates the endogenous factor share decision into an otherwise standard real business cycle (RBC) model. The model is estimated through the Bayesian method based on Chinese aggregate data. Our quantitative results show that: (1) the model outperforms the traditional RBC model in explaining China’s macroeconomic data; (2) the labor supply shock is the main driving force of the observed fluctuations in factor share; (3) the endogenous factor share decision amplifies the adverse impacts caused by a negative labor supply shock; therefore, ignoring this mechanism would underestimate the contribution of labor supply shocks to Chinese business cycles. |
| Serial Number | WP1186 |
| Time | 2017-05-02 |
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