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    Multiplicatively separable preferences and output persistence

    Vaona, A. (2005) Multiplicatively separable preferences and output persistence. Working Paper. Birkbeck, University of London, London, UK.

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    Abstract

    In the New-Neoclassical Synthesis literature it is customary to use additively separable preferences, very often not compatible with long-run productivity growth and trend inflation. The present paper shows that using multiplicatively separable preferences it is possible to gain further insight on the persistence mechanics of this class of models. In particular it is showed that the more leisure and the money-consumption bundle are Edgeworth complement and the less persistent are output deviations after a monetary shock. The basic intuition for this result is that an increase in money supply not only induces economic agents to increase their labour supply, but also raises the opportunity cost for this choice given that agents with more money in their pockets and greater consumption would like to have more leisure too. In addition, empirical estimates not only support multiplicatively and not additively separable preferences, but highlight new problems for the New-Neoclassical Synthesis given that leisure and money (consumption) appear to be Edgeworth complements and not substitutes.

    Metadata

    Item Type: Monograph (Working Paper)
    Additional Information: BWPEF 0511
    Keyword(s) / Subject(s): Output persistence, multiplicatively separable preferences
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Administrator
    Date Deposited: 05 Apr 2019 08:14
    Last Modified: 10 Aug 2019 23:33
    URI: http://eprints.bbk.ac.uk/id/eprint/27038

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