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Statistical nonlinearities in the business cycle: A challenge for the canonical RBC model

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  • Valderrama, Diego

Abstract

Significant nonlinearities are found in several cyclical components macroeconomic time series across countries. Standard equilibrium models of business cycles successfully explain most first and second moments of these time series. Nevertheless, this paper shows that a model of this class cannot replicate nonlinear features of the data. Applying the Efficient Method of Moments (Gallant and Tauchen, 1996, 2000) methodology to build an algorithm that searches over the models parameter space establishes the parameterization that best allows replication of all statistical properties of the data. The results show that this parameterization captures nonlinearities in investment but fails to account for observed properties of consumption.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 31 (2007)
Issue (Month): 9 (September)
Pages: 2957-2983

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Handle: RePEc:eee:dyncon:v:31:y:2007:i:9:p:2957-2983

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Cited by:
  1. Julia K. Thomas & Aubhik Khan, 2004. "Idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics," 2004 Meeting Papers 455, Society for Economic Dynamics.
  2. Diego Valderrama, 2002. "Nonlinearities in international business cycles," Working Paper Series 2002-23, Federal Reserve Bank of San Francisco.
  3. Altug, Sumru G. & Bildirici, Melike, 2010. "Business Cycles around the Globe: A Regime-switching Approach," CEPR Discussion Papers 7968, C.E.P.R. Discussion Papers.

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