Plucking models of business cycle fluctuations: Evidence from the G-7 countries
AbstractFriedman's `plucking' model, in which output cannot exceed a ceiling level but is occasionally plucked downward by recessions, is tested using Kim and Nelson's formal econometric specification on output data from the G-7 countries. Considerable support for the model is obtained, leading us to conclude that during normal periods, output seems to be driven mostly by permanent shocks, but during recessions and high-growth recoveries, transitory shocks dominate. During these periods macroeconomic models that emphasise demand-oriented shocks, rather than real business cycle type models, may thus be more appropriate.
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Bibliographic InfoArticle provided by Springer in its journal Empirical Economics.
Volume (Year): 27 (2002)
Issue (Month): 2 ()
Note: Received: September 2000/Final Version Received: May 2001
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