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Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE approach

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  • Frank Smets

    ()
    (European Central Bank
    CEPR
    University of Ghent)

  • Raf Wouters

    ()
    (National Bank of Belgium, Research Department)

Abstract

This paper estimates a DSGE model with many types of shocks and frictions for both the US and the euro area economy over a common sample period (1974-2002). The structural estimation methodology allows us to investigate whether differences in business cycle behaviour are due to differences in the type of shocks that affect the two economies, differences in the propagation mechanism of those shocks or differences in the way the central bank responds to those economic developments. Our main conclusion is that each of those characteristics is remarkably similar across both currency areas.

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File URL: http://www.nbb.be/doc/oc/repec/reswpp/WP61.pdf
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Bibliographic Info

Paper provided by National Bank of Belgium in its series Working Paper Research with number 61.

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Length: 36 pages
Date of creation: Oct 2004
Date of revision:
Handle: RePEc:nbb:reswpp:200410-1

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Keywords: DSGE models; business cycle fluctuations;

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References

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  1. Jeff Fuhrer, 2000. "Optimal Monetary Policy In A Model With Habit Formation," Computing in Economics and Finance 2000 306, Society for Computational Economics.
  2. Agresti, Anna Maria & Mojon, Benoît, 2001. "Some stylised facts on the euro area business cycle," Working Paper Series 0095, European Central Bank.
  3. Christopher J. Erceg & Andrew T. Levin, 2001. "Imperfect credibility and inflation persistence," Finance and Economics Discussion Series 2001-45, Board of Governors of the Federal Reserve System (U.S.).
  4. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
  5. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
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  12. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
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  17. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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  19. Frank Schorfheide, 2000. "Loss function-based evaluation of DSGE models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(6), pages 645-670.
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