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Fat-tail Distributions and Business-Cycle Models

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  • Guido Ascari

    ()
    (University of Pavia)

  • Giorgio Fagiolo

    ()
    (Sant'Anna School of Advanced Studies)

  • Andrea Roventini

    ()
    (OFCE-Sciences-po,Sant'Anna School of Advanced Studies)

Abstract

Recent empirical findings suggest that macroeconomic variables are seldom normally dis- tributed. For example, the distributions of aggregate output growth-rate time series of many OECD countries are well approximated by symmetric exponential-power (EP) den- sities, 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 sta- tistical 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 Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2012-01.

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Date of creation: Jan 2012
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Handle: RePEc:fce:doctra:1201

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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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  1. Giulio Bottazzi & Angelo Secchi, 2006. "Maximum Likelihood Estimation of the Symmetric and Asymmetric Exponential Power Distribution," LEM Papers Series 2006/19, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
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  7. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
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  13. Giorgio Fagiolo & Mauro Napoletano & Marco Piazza & Andrea Roventini, 2009. "Detrending and the Distributional Properties of U.S. Output Time Series," Economics Bulletin, AccessEcon, vol. 29(4), pages 3155-3161.
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  15. Fu, Dongfeng & Pammolli, Fabio & Buldyrev, Sergey V. & Riccaboni, Massimo & Matia, Kaushik & Yamasaki, Kazuko & Stanley, H. Eugene, 2005. "The Growth of Business Firms: Theoretical Framework and Empirical Evidence," MPRA Paper 15905, University Library of Munich, Germany.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. What's wrong with economics?
    by chris dillow in Stumbling and Mumbling on 2012-06-10 11:32:34
  2. Fat-tail Distributions and Business-Cycle Models
    by Christian Zimmermann in NEP-DGE blog on 2012-02-23 03:25:12
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Cited by:
  1. Giorgio Fagiolo & Andrea Roventini, 2012. "Macroeconomic Policy in DSGE and Agent-Based Models," INET Research Notes 6, Institute for New Economic Thinking (INET).
  2. Marco Del Negro & Vasco Curdia, 2012. "Rare Shocks, Great Recessions," 2012 Meeting Papers 654, Society for Economic Dynamics.

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