Rbc with indivisible labor

Hello everyone,

I have basic RBC model with temporary and permanent shock.(please see attached) I would like to add indivisible labor into the model. Could you please explain to me how i can do it or give me some suggestion where i should look for?
model.mod (1.82 KB)

Usually you just have to adjust the FOC for labor so that it reflects the linear functional form you assume. You might want to have a look at github.com/JohannesPfeifer/DSGE_mod/blob/master/Hansen_1985/Hansen_1985.mod

Dear Johannes,
Thank you very much for your reply. I looked at the codes that you suggest by following the Hansen’s article. I built the model and it worked. I found st. dev. and corr. of them with output. I could not understand why the standard deviation of c/y , w/y, y_h/y are the same. I feel that I did a mistake somewhere in the model. Could you please look at my codes and tell me whether i made a mistake somewhere? or these results are okay.

Table 1 - Moments
sigma(y) 6.89
sigma©/sigma(y) 0.49
sigma(h)/sigma(y) 1.38
sigma(i)/sigma(y) 7.74
sigma(w)/sigma(y) 0.49
sigma(y_h)/sigma(y) 0.49
rho(y) 0.07
rho(y,c) -0.66
rho(y,h) 0.97
rho(y,i) 0.97
rho(y,w) -0.66
rho(y,y_h) -0.66
model.mod (3.73 KB)

You should think more about what you are modelling. Linear labor implies a linearized FOC of the type

Moreover, the wage is proportional to labor productivity

again implying

Thus, with linear labor the moments should be the same.