Browsing by Author "Koski, Maaria"

The measured gross domestic product, GDP, does not consider non-paid homework in its figures. However, the relative size of the so called household production is large both from time use perspective but also as monetary wise. According to Statistics Finland, the non-salaried homework was 39.8 % of the measured Finnish GDP in 2016. Moreover, Finns spent on average three hours and 21 minutes on daily basis on household production in 2009. Yet, the standard economic theory also excludes household production in the models although individuals are known to allocate their time between market work, homework and leisure. The real business cycle theory attempts to explain and study the properties of business cycles. In this Master’s Thesis, the household production is studied within the real business cycle (RBC) theory. The purpose is to compare the benefits of including household production into the real business cycle model to the standard alternative where it is excluded. Real business cycles are studied by constituting a dynamic stochastic general equilibrium model (DSGE) for both cases: one for the household production and one for the standard non-household production. The models constituted are for a frictionless closed economy. Both models are then calibrated with Finnish figures and simulated. The results indicate that market hours are procyclical in both models. However, the correlation between output and market hours is 1.33 times larger in the household production model than in the standard model. Also, the household production model generates highly countercyclical home hours. Yet, the Finnish time use data cannot prove the procyclicality of household production hours. The main reason is that the time use research is conducted only every ten years. Also, the timing of the research does not reconcile with the Finnish recessions. Hence, the data available cannot explain the countercyclical home hours indicated by the household production real business cycle model. In this sense, the results presented can only be taken as describing facts of the Finnish economy when household production is considered.