Do Sunspots Produce Business Cycles?
Abstract
We contrast the Farmer and Guo sunspots model with the Hansen indivisible labor real business cycle model using impulse responses, growth spectra, and Watson's measure of fit for calibrated models. We find that the sunspots model is better able to reproduce the typical spectral shape of growth rates found in the data. However, the model, characterized by production externalities and aggregate increasing returns, generates excessive investment volatility and overstates high frequency behavior in employment, investment and output series. The introduction of adjustment costs, in conjunction with separate externality parameters to capital and labor inputs, can reduce these weaknesses substantially, though this may require the assumption of an implausible level of increasing returns.Download Info
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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 1999-E10.Length:
Date of creation: Dec 1998
Date of revision:
Handle: RePEc:cmu:gsiawp:-476543995
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Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/
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Web: http://student-3k.tepper.cmu.edu/gsiadoc/GSIA_WP.asp
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Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Ihle, Rico & von Cramon-Taubadel, Stephan, 2008. "A Comparison of Threshold Cointegration and Markov-Switching Vector Error Correction Models in Price Transmission Analysis," 2008 Conference, April 21-22, 2008, St. Louis, Missouri 37603, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
- Nicoletta Batini & Joe Pearlman, 2002.
"Too Much Too Soon: Instability and Indeterminacy with Forward-Looking Rules,"
Computing in Economics and Finance 2002
182, Society for Computational Economics.
- Nicoletta Batini & Joseph Pearlman, 2002. "Too Much Too Soon: Instability and Indeterminacy with Forward-Looking Rules," Discussion Papers 08, Monetary Policy Committee Unit, Bank of England.
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