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Fat-Tail Distributions and Business-Cycle Models

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  • Guido Ascari
  • Giorgio Fagiolo
  • Andrea Roventini

Abstract

Recent empirical findings suggest that macroeconomic variables are seldom normally distributed. For example, the distributions of aggregate output growth-rate time series of many OECD countries are well approximated by symmetric exponential-power (EP) densities, with Laplace fat tails. In this work, we assess whether Real Business Cycle (RBC) and standard medium-scale New-Keynesian (NK) models are able to replicate this statistical regularity. We simulate both models drawing Gaussian- vs Laplace-distributed shocks and we explore the statistical properties of simulated time series. Our results cast doubts on whether RBC and NK models are able to provide a satisfactory representation of the transmission mechanisms linking exogenous shocks to macroeconomic dynamics.

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Bibliographic Info

Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2012-7.

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Length: 14 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:drm:wpaper:2012-7

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Keywords: Growth-Rate Distributions; Normality; Fat Tails; Time Series; Exponential-Power Distributions; Laplace Distributions; DSGE Models; RBC Models;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Fat-tail Distributions and Business-Cycle Models
    by Christian Zimmermann in NEP-DGE blog on 2012-02-23 03:25:12
  2. What's wrong with economics?
    by chris dillow in Stumbling and Mumbling on 2012-06-10 11:32:34
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Cited by:
  1. Giorgio Fagiolo & Andrea Roventini, 2012. "Macroeconomic Policy in DSGE and Agent-Based Models," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 67-116.
  2. Marco Del Negro & Vasco Curdia, 2012. "Rare Shocks, Great Recessions," 2012 Meeting Papers 654, Society for Economic Dynamics.

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