Stochastic Volatility and DSGE Models
Abstract
This paper argues that a specification of stochastic volatility commonly used to analyze the Great Moderation in DSGE models may not be appropriate, because the level of a process with this specification does not have conditional or unconditional moments. This is unfortunate because agents may as a result expect productivity and hence consumption to be inifinite in all future periods. This observation is followed by three ways to overcome the problem.Download Info
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Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2009-29.Length: 8
Date of creation: 07 Jul 2009
Date of revision:
Handle: RePEc:aah:create:2009-29
Contact details of provider:
Web page: http://www.econ.au.dk/afn/
Related research
Keywords: Great Moderation; Productivity shocks; and Time-varying coe¢ cients;Other versions of this item:
- Andreasen, Martin M., 2010. "Stochastic volatility and DSGE models," Economics Letters, Elsevier, vol. 108(1), pages 7-9, July.
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-11 (All new papers)
- NEP-BEC-2009-07-11 (Business Economics)
- NEP-DGE-2009-07-11 (Dynamic General Equilibrium)
- NEP-ECM-2009-07-11 (Econometrics)
- NEP-ETS-2009-07-11 (Econometric Time Series)
- NEP-MAC-2009-07-11 (Macroeconomics)
References
References listed on IDEASPlease report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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NBER Working Papers
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