Martin M. Andreasen () (Bank of England and CREATES)
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.
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Publisher Info
Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number
2009-29.
Find related papers by JEL classification: E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
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