Aggregation, Persistence and Volatility in a Macro Model
AbstractWe introduce firm heterogeneity into the standard monopolistically competitive real business cycle (RBC) model. The fundamental equilibrium path is derived and the time-series properties of aggregate GDP are studied analytically. Although firms' productivities are subject to temporary shocks, the aggregate process displays a surprising novel form of nonlinearity and long memory which had not been built into the model at the outset. This aggregate GDP turns out to have very different properties from log-linear time-series models such as auto-regressive (AR) models and their extensions. It displays very strong persistence, which ends abruptly with a sudden change of tendency, giving its autocorrelation function (ACF) an S-shape. Although persistent, it is mean-reverting, unlike the everlasting memory of unit-root processes. Its volatility is of a greater order of magnitude than that of any of its components, so small micro-shocks can generate large macro fluctuations. It is also characterized by long, asymmetric cycles of random lengths. Increased monopoly power tends to reduce the amplitude and increase the persistence of business cycles. Strikingly, we find that the empirical ACFs constructed from GDP data for the U.K. and the U.S. display this characteristic S-shape. Copyright 2002, Wiley-Blackwell.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Oxford University Press in its journal The Review of Economic Studies.
Volume (Year): 69 (2002)
Issue (Month): 4 ()
Contact details of provider:
Other versions of this item:
- Abadir, Karim & Talmain, Gabriel, 2002. "Aggregation, Persistence and Volatility in a Macro Model," Review of Economic Studies, Wiley Blackwell, vol. 69(4), pages 749-79, October.
- Karim Abadir & Gabriel Talmain, . "Aggregation, Persistence and Volatility in a Macromodel," Discussion Papers 01/03, Department of Economics, University of York.
- Karim Abadir & Gabriel Talmain, 2001. "Aggregation, Persistence and Volatility in a Macromodel," Working Papers w200106, Banco de Portugal, Economics and Research Department.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.