Title: Non-convexities in quantitative general equilibrium studies of business cycles
Description: "This paper reviews the role of micro non-convexities in the study of business cycles.  One important non-convexity arises because an individual can work only one workweek length in a given week.  The implication of this non-convexity is that the aggregate intertemporal elasticity of labor supply is large and the principal margin of adjustment is in the number employed--not in the hours per person employed--as observed.  The paper also reviews a business cycle model with an occasionally binding capacity constraint.  This model better mimics business cycle fluctuations than the standard real business cycle model.  Aggregation in the presence of micro non-convexities is key in the model"--Federal Reserve Bank of Minneapolis web site.
Subjects: Business cycles, Econometric models