AN EQUILIBRIUM-MODEL OF THE BUSINESS-CYCLE WITH HOUSEHOLD PRODUCTION AND FISCAL-POLICY

We estimate a dynamic general equilibrium model of the U.S. economy th at includes an explicit household production sector and stochastic fis cal variables. We use our estimates to investigate two issues. First, we analyze how well the model accounts for aggregate fluctuations. We find that household production has a significant impact and reject a n ested specification in which changes in the home production technology do not matter for market variables. Second, we study the effects of s ome simple fiscal policy experiments and show that the model generates different predictions for the effects of tax changes than similar mod els without home production.