The paper asks how state of the art DSGE models that account for the conditional response of hours
following a positive neutral technology shock compare in a marginal likelihood race. To that end we
construct and estimate several competing small-scale DSGE models that extend the standard real
business cycle model. In particular, we identify from the literature six different hypotheses that generate
the empirically observed decline in worked hours after a positive technology shock. These models
alternatively exhibit (i) sticky prices; (ii) firm entry and exit with time to build; (iii) habit in
consumption and costly adjustment of investment; (iv) persistence in the permanent technology shocks;
(v) labor market friction with procyclical hiring costs; and (vi) Leontief production function with labor-saving technology shocks. In terms of model posterior probabilities, impulse responses, and
autocorrelations, the model favored is the one that exhibits habit formation in consumption and
investment adjustment costs. A robustness test shows that the sticky price model becomes as
competitive as the habit formation and costly adjustment of investment model when sticky wages are
included.
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