Abstract
A New Keynesian model of the economy including self-employing households is formulated to examine its behavior over aggregate fluctuations, which is artificially generated by changing the autonomous investment. Then, recent quarterly fluctuations of employment and output around their Hodrick-Prescott trends are examined and compared between Japan and the United States to check the validity of this model. Thus, the present study follows and extends the authors' preceding one (1998). It is found that household employment is countercyclical to offset variations in wage and salary employment. Household expenditures for consumer services and nondurables as well as government expenditures are less variable than other sectors to help stabilize GDP. Furthermore, government investment and imports are countercyclical in Japan, so are national defense and imports in the United States. Thus, the household sector with its large shares in working age population and GDP cooperates with the government to stabilize aggregate fluctuations both in employment and output.
