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Measurement with Some Theory: a New Approach to Evaluate Business Cycle Models (with appendices)

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Author Info

  • Fabio Canova
  • Matthias Paustian

Abstract

We propose a method to evaluate cyclical models which does not require knowledge of the DGP and the exact specification of the aggregate decision rules. We derive robust restrictions in a class of models; use some to identify structural shocks in the data and others to evaluate the class or contrast sub-models. The approach has good properties, even in small samples and when the likelihood is misspecified. We showhow to sort out the relevance of a certain friction (the presence of rule-of-thumb consumers) in a standard class of models.

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File URL: http://research.barcelonagse.eu/tmp/working_papers/511.pdf
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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 511.

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Date of creation: Oct 2010
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Handle: RePEc:bge:wpaper:511

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Related research

Keywords: Sign restrictions; shock identification; model validation; misspecification;

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  1. > Macroeconomics > Monetary Theory
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Cited by:
  1. Valcarcel, Victor J. & Wohar, Mark E., 2013. "Changes in the oil price-inflation pass-through," Journal of Economics and Business, Elsevier, vol. 68(C), pages 24-42.
  2. Schenkelberg, Heike & Watzka, Sebastian, 2013. "Real effects of quantitative easing at the zero lower bound: Structural VAR-based evidence from Japan," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 327-357.

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