Calibration of Household Preference Parameters#

Behavioral Assumptions#

Elasticity of labor supply#

As discussed in the OG-Core household theory documentation, we use the elliptical disutility of labor function developed by [Evans and Phillips, 2017]. We then fit the parameters of the elliptical utility function to match the marginal disutility from a constant Frisch elasticity function. OG-ZAF users enter the constant Frisch elasticity as a parameter. [Peterman, 2016] finds a range of Frisch elasticities estimated from microeconomic and macroeconomic data. These range from 0 to 4. Peterman makes the case that in lifecycle models without an extensive margin for employment the Frisch elasticity should be higher. For OG-ZAF we take a default value of 0.4 from [Altonji, 1986].

Intertemporal elasticity of substitution#

The default value for the intertemporal elasticity of substitution, $\sigma$, is taken from [Attanasio et al., 1999]. We set $\sigma =1.5$.

Rate of time preference#

We take our default value for the rate of time preference parameter, $\beta$ from [Carroll, 2009]. We set the value to $\beta =0.96$ (on an annual basis).