Abstract
This paper studies the behaviour of hours-worked in the event of positive technology shock first in the closed economy DSGE model and second by adding a corporate profits in a bivariate SVAR model. Our analytical results show that in the presence of sticky prices, hours decrease in the event of a shock. However, in case of flexible prices or when central bank systematically respond to technology shocks, hours increase. Results based on SVAR model show that the inclusion of profits change the result of Gali (1999) by showing that hours increase at the aggregate level. However, sectoral analysis reveals different picture. Out of four only one sector is consistent with aggregate findings.
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