OVERTIME, EFFORT, AND THE PROPAGATION OF BUSINESS-CYCLE SHOCKS

This paper presents and estimates a variant of Hansen and Sargent's (1 988) real business cycle model with straight time and overtime. The mo del presented has only one latent variable, the state of technology, y et it does a better job propagating and magnifying shocks than the lab or hoarding models which incorporate unobserved effort. This model, as well as a version of Burnside, Eichenbaum, and Rebelo's (1993) labor hoarding model, is estimated using maximum likelihood. The maximum lik elihood parameter estimates are compared to those using GMM.