ABSTRACT
This paper presents maximum likelihood estimates and tests of a model similar to one Kydland and Prescott (1982) suggested. For this purpose, it derives equilibrium laws of motion for a set of aggregate variables as functions of the model’s parameters and the innovation to the technology shock. The paper shows that a single unobservable index can explain the variability in the observed series, but identifying the single index with the innovation to the technology shock implies that per capita hours is not well explained. It also shows that time-separable preferences with respect to leisure are consistent with the data.
