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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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Related research

Keywords: Block bootstrap; Hidden variables; Laws of motion for forcing variables; Monte Carlo simulations.;

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  1. Michel Normandin, 1996. "Budget Deficit Persistence and the Twin Deficits Hypothesis," Macroeconomics 9607001, EconWPA.
  2. Sheffrin, Steven M. & Woo, Wing Thye, 1990. "Present value tests of an intertemporal model of the current account," Journal of International Economics, Elsevier, vol. 29(3-4), pages 237-253, November.
  3. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  4. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  5. Boileau, Martin & Normandin, Michel, 2003. "Labor hoarding, superior information, and business cycle dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 28(2), pages 397-418, November.
  6. Campbell, John Y & Deaton, Angus, 1989. "Why Is Consumption So Smooth?," Review of Economic Studies, Wiley Blackwell, vol. 56(3), pages 357-73, July.
  7. 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, vol. 87(6), pages 1190-1219, December.
  8. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-88, October.
  9. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
  10. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 7-46, May.
  11. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  12. Martin Boileau & Michel Normandin, 1997. "Aggregate Employment, Real Business Cycles, and Superior Information," Cahiers de recherche CREFE / CREFE Working Papers 55, CREFE, Université du Québec à Montréal.
  13. Flavin, Marjorie, 1993. "The Excess Smoothness of Consumption: Identification and Interpretation," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 651-66, July.
  14. 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, vol. 21(2-3), pages 195-232.
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