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Econometric Inference, Cyclical Fluctuations, and Superior Information

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This paper presents and assesses a procedure to estimate conventional parameters characterizing fluctuations at the business cycle frequency, when the economic agents’ information set is superior to the econometrician’s one. Specifically, we first generalize the conditions under which the econometrician can estimate these ‘cyclical fluctuation’ parameters from augmented laws of motion for forcing variables that fully recover the agents’ superior information. Second, we document the econometric properties of the estimates when the augmented laws of motion are possibly misspecified. Third, we assess the ability of certain information criteria to detect the presence of superior information.

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File URL: http://www.hec.ca/iea/cahiers/2004/iea0413_mn.pdf
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Paper provided by HEC Montréal, Institut d'économie appliquée in its series Cahiers de recherche with number 04-13.

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Length: 40 pages
Date of creation: Dec 2004
Date of revision:
Handle: RePEc:iea:carech:0413

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Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7
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Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7
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Keywords: Block bootstrap; Hidden variables; Laws of motion for forcing variables; Monte Carlo simulations.;

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  1. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, Elsevier, vol. 21(2-3), pages 195-232.
  2. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, American Economic Association, vol. 62(4), pages 540-52, September.
  3. Flavin, Marjorie, 1993. "The Excess Smoothness of Consumption: Identification and Interpretation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 60(3), pages 651-66, July.
  4. Campbell, John & Shiller, Robert, 1987. "Cointegration and Tests of Present Value Models," Scholarly Articles 3122490, Harvard University Department of Economics.
  5. Martin Boileau & Michel Normandin, 1997. "Aggregate Employment, Real Business Cycles, and Superior Information," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 55, CREFE, Université du Québec à Montréal.
  6. Sheffrin, Steven M. & Woo, Wing Thye, 1990. "Present value tests of an intertemporal model of the current account," Journal of International Economics, Elsevier, Elsevier, vol. 29(3-4), pages 237-253, November.
  7. Michel Normandin, 1994. "Budget Deficit Persistence and the Twin Deficits Hypothesis," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 31, CREFE, Université du Québec à Montréal.
  8. Boileau, Martin & Normandin, Michel, 2003. "Labor hoarding, superior information, and business cycle dynamics," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 28(2), pages 397-418, November.
  9. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 2(1), pages 7-46, May.
  10. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, Econometric Society, vol. 48(1), pages 1-48, January.
  11. Shiller, Robert J, 1979. "The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(6), pages 1190-1219, December.
  12. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, Econometric Society, vol. 37(3), pages 424-38, July.
  13. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
  14. Campbell, John & Deaton, Angus, 1989. "Why Is Consumption So Smooth?," Scholarly Articles 3221494, Harvard University Department of Economics.
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