Using theory for measurement: An analysis of the cyclical behavior of home production

A significant amount of economic activity takes place within the home. Unfortunately, it is difficult to assess the cyclical properties of home production because the available data are too sporadic. Using a real business cycle (RBC) model, we construct quarterly data on three variables that are unobservable at a quarterly frequency: hours worked in the home sector, hours spent in leisure, and the consumption of home-produced goods. Three results emerge: leisure is countercyclical while nonmarket hours are acyclical; hours spent in home production have declined significantly since the 1970s; fluctuations in market output are a good measure of fluctuations in individual utility as long as home and market consumption are either extreme complements or extreme substitutes in the production of utility. (C) 1997 Elsevier Science B.V. All rights reserved.