Calibrate disutility of work

General DSGE Modeling
1

Dear all,

I want to calibrate the disutility of working for a developing country. As such I want theta (disutility of working parameter) to match the fact that on average people in developing countries work 40% of their non-sleeping time. I do however not know how to do this :frowning:

I think my problem starts with the fact that I don’t know how to relate/ convert the steady state value of labour to hours worked.

Any tips or trics? Or papers that describe detailed how they do this?

Thank you!

PS: my utility function without the E_0 and the sum sign: beta C_t^(1-sigma)/(1-sigma) - theta * L_t^(1+chi)/(1+chi)]

2

That means that in steady state you set L=0.4. What you need to do is analytically compute your steady state, take L as given and compute the labor disutility parameter consistent with this steady state. An example is at github.com/JohannesPfeifer/DSGE_mod/blob/master/RBC_baseline/RBC_baseline.mod

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3

Dear Professor Pfeifer,

I hope you are doing well. Do you mean by analytically computing the steady state expressing labor in terms of parameters then choosing parameter values that result in getting the steady state value (0.4 in this example)? I’m also finding difficulty understanding the process to follow in order to calibrate model parameters and obtain the steady state values. Thanks in advance.

4

What I mean is: you assume labor to be 0.4 in this example and compute the whole steady state for the endogenous variables. At the end, you make sure to set the labor disutility parameter to assure that L=0.4 is indeed a steady state.

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5

Thank you Professor Pfeifer for your response. May I ask, should we specify an initial value for the work disutility parameter in the dynare program or will we only calibrate it by hand after we find the steady state for the endogenous variables?

6

You can specify an initial value, but it will be overwritten later on.

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7

Thank you so much Professor Pfeifer for your time and answers. We are grateful for your constant help and availability.