Stochastic Volatility and DSGE Models
AbstractThis 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.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2009-29.
Date of creation: 07 Jul 2009
Date of revision:
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Web page: http://www.econ.au.dk/afn/
Great Moderation; Productivity shocks; and Time-varying coe¢ cients;
Other versions of this item:
- 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)
Please 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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