Evidence on a Real Business Cycle model with Neutral and Investment-Specific Technology Shocks using Bayesian Model Averaging
AbstractThe empirical support for a real business cycle model with two technology shocks is evaluated using a Bayesian model averaging procedure. This procedure makes use of a finite mixture of many models within the class of vector autoregressive (VAR) processes. The linear VAR model is extended to permit cointegration, a range of deterministic processes, equilibrium restrictions and restrictions on long-run responses to technology shocks. We find support for a number of the features implied by the real business cycle model. For example, restricting long run responses to identify technology shocks has reasonable support and important implications for the short run responses to these shocks. Further, there is evidence that savings and investment ratios form stable relationships, but technology shocks do not account for all stochastic trends in our system. There is uncertainty as to the most appropriate model for our data, with thirteen models receiving similar support, and the model or model set used has significant implications for the results obtained.
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Bibliographic InfoPaper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2010-522.
Length: 53 Pages
Date of creation: May 2010
Date of revision:
Other versions of this item:
- Rodney W. Strachan & Herman K. van Dijk, 2010. "Evidence on a Real Business Cycle Model with Neutral and Investment-Specific Technology Shocks using Bayesian Model Averaging," Tinbergen Institute Discussion Papers 10-050/4, Tinbergen Institute.
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-29 (All new papers)
- NEP-BEC-2010-05-29 (Business Economics)
- NEP-DGE-2010-05-29 (Dynamic General Equilibrium)
- NEP-ECM-2010-05-29 (Econometrics)
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