Jaimovich–Rebelo preferences

Jaimovich-Rebelo preferences refer to a utility function that allows to parameterize the strength of short-run wealth effects on the labor supply, originally developed by Nir Jaimovich and Sergio Rebelo in their 2009 article Can News about the Future Drive the Business Cycle?

Let C t denote consumption and let N t denote hours worked at period t . The instantaneous utility has the form

u ( C t , N t ) = ( C t − ψ N t θ X t ) 1 − σ − 1 1 − σ ,

where

X t = C t γ X t − 1 1 − γ .

It is assumed that θ > 1 , ψ > 0 , and σ > 0 .

The agents in the model economy maximize their lifetime utility, U , defined over sequences of consumption and hours worked,

U = E 0 ∑ t = 0 ∞ β t u ( C t , N t ) ,

where E 0 denotes the expectation conditional on the information available at time zero, and the agents internalize the dynamics of X t in their maximization problem.