DP4915 Trends in Hours, Balanced Growth and the Role of Technology in the Business Cycle

Author(s): Jordi Galí

Publication Date: February 2005

Keyword(s): real business cycles , technology shocks , non-stationary hours

JEL(s): E32

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP4915.asp

The present paper revisits a property embedded in most dynamic macroeconomic models: the stationarity of hours worked. First, I argue that, contrary to what is often believed, there are many reasons why hours could be non-stationary in those models, while preserving the property of balanced growth. Second, I show that the post-war evidence for most industrialized economies is clearly at odds with the assumption of stationary hours per capita. Third, I examine the implications of that evidence for the role of technology as a source of economic fluctuations in the G7 countries.