How Different is the Cyclical Behavior of Home Production Across Countries?

Despite the important role played by household production in aggregate economic activity, our knowledge of the cyclical features of this sector is quite limited. This paper studies stylized business cycle properties of household production in five industrialized countries. We employ a dynamic small open economy business cycle model which incorporates a household production sector. We use the model's Euler equations and the observable data on the model's endogenous variables regarding market production to generate data on home output (equivalently home consumption), hours worked in the home sector, and hours spent in leisure. We find a number of regularities in the cyclical behavior of home and market sector variables in each country. First, home output is more volatile than market output while leisure is the least volatile series. Second, home output is on average procyclical, whereas leisure is highly countercyclical in all countries. Third, home sector variables are generally less persistent than market variables. Fourth, cross-country correlations related to home production tend to be lower than those of market production for both hours and output series. Fifth, home sector productivity shocks are more volatile than those of the market sector. While the moment implications of existing business cycle models rely heavily on the assumed properties of household sector productivity shocks, our results suggest that these models are able to capture some important features of business cycles in home production