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

• Authors: Jordi Galí.
• BSE Working Paper: 112243 | September 15
• Keywords: real business cycles , technology shocks , market frictions , balanced growth path , stationarity of hours
• JEL codes: E32
• real business cycles
• technology shocks
• market frictions
• balanced growth path
• stationarity of hours

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 nonstationary in those models, while preserving the property of balanced growth. Second, I show that the postwar 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.