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Sources of macroeconomic fluctuations: A regime‐switching DSGE approach

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  • Zheng Liu
  • Daniel F. Waggoner
  • Tao Zha

Abstract

We examine the sources of macroeconomic economic fluctuations by es- timating a variety of medium-scale DSGE models within a unified framework that incorporates regime switching both in shock variances and in the inflation target. Our general framework includes a number of different model features studied in the liter- ature. We propose an efficient methodology for estimating regime-switching DSGE models. The model that best fits the U.S. time-series data is the one with synchro- nized shifts in shock variances across two regimes and the fit does not rely on strong nominal rigidities. We find little evidence of changes in the inflation target. We identify three types of shocks that account for most of macroeconomic fluctuations: shocks to total factor productivity, wage markup, and the capital depreciation rate.

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Bibliographic Info

Article provided by Econometric Society in its journal Quantitative Economics.

Volume (Year): 2 (2011)
Issue (Month): 2 (07)
Pages: 251-301

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Handle: RePEc:ecm:quante:v:2:y:2011:i:2:p:251-301

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References

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Citations

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Cited by:
  1. Francesco Furlanetto & Martin Seneca, 2011. "New perspectives on depreciation shocks as a source of business cycle fluctuations," Working Paper 2011/02, Norges Bank.
  2. Vasco Cúrdia & Marco Del Negro & Daniel L. Greenwald, 2012. "Rare shocks, great recessions," Staff Reports 585, Federal Reserve Bank of New York.
  3. Lieven Baele & et al., 2012. "Macroeconomic Regimes," Faculty Working Papers 03/12, School of Economics and Business Administration, University of Navarra.
  4. Pablo A Guerron-Quintana & James M Nason, 2012. "Bayesian Estimation of DSGE Models," CAMA Working Papers 2012-10, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  5. Zheng Liu & Pengfei Wang & Tao Zha, 2011. "Land-price dynamics and macroeconomic fluctuations," NBER Working Papers 17045, National Bureau of Economic Research, Inc.
  6. Tom Holden, 2012. "Medium-frequency cycles and the remarkable near trend-stationarity of output," School of Economics Discussion Papers 1412, School of Economics, University of Surrey.
  7. Daniel F. Waggoner & Tao Zha, 2010. "Confronting Model Misspecification in Macroeconomics," Emory Economics 1012, Department of Economics, Emory University (Atlanta).
  8. Marianna Riggi, 2012. "Capital destruction, jobless recoveries, and the discipline device role of unemployment," Temi di discussione (Economic working papers) 871, Bank of Italy, Economic Research and International Relations Area.

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