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Maximum Likelihood in the Frequency Domain: A Time to Build Example

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  • Lawrence J. Christiano
  • Robert J. Vigfusson

Abstract

A well known result is that the Gaussian log-likelihood can be expressed as the sum over different frequency components. This implies that the likelihood ratio statistic has a similar linear decomposition. We exploit these observations to devise diagnostic methods that are useful for interpreting maximum likelihood parameter estimates and likelihood ratio tests. We apply the methods to the estimation and testing of two real business cycle models. The standard real business cycle model is rejected in favor of an alternative in which capital investment requires a planning period

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7027.

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Date of creation: Mar 1999
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Publication status: published as Christiano, Lawrence J. and Robert J. Vigfusson. "Maximum Likelihood In The Frequency Domain: The Importance Of Time-To-Plan," Journal of Monetary Economics, 2003, v50(4,May), 789-815.
Handle: RePEc:nbr:nberwo:7027

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  2. Ireland, Peter N., 1997. "A small, structural, quarterly model for monetary policy evaluation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 47(1), pages 83-108, December.
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  4. Lawrence J. Christiano & Martin Eichenbaum & David Marshall, 1990. "The permanent income hypothesis revisited," Staff Report, Federal Reserve Bank of Minneapolis 129, Federal Reserve Bank of Minneapolis.
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  9. Christiano, Lawrence J. & Eichenbaum, Martin, 1987. "Temporal aggregation and structural inference in macroeconomics," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 26(1), pages 63-130, January.
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  13. Christiano, Lawrence J., 1985. "A method for estimating the timing interval in a linear econometric model, with an application to Taylor's model of staggered contracts," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 9(4), pages 363-404, December.
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  15. Altug, Sumru, 1989. "Time-to-Build and Aggregate Fluctuations: Some New Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 889-920, November.
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  21. Christiano, Lawrence J., 1988. "Why does inventory investment fluctuate so much?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 21(2-3), pages 247-280.
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Cited by:
  1. Michele Boldrin & Lawrence J. Christiano & Jonas D.M. Fisher, 1999. "Habit persistence, asset returns and the business cycles," Working Paper Series, Federal Reserve Bank of Chicago WP-99-14, Federal Reserve Bank of Chicago.
  2. Michael Reiter & Ulrich Woitek, 1999. "Are these classical business cycles?," Economics Working Papers 398, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Lars E. O. Svensson & Michael Woodford, 2003. "Implementing Optimal Policy through Inflation-Forecast Targeting," NBER Working Papers 9747, National Bureau of Economic Research, Inc.
  4. Lars Jonung, 2005. "Proceedings of the 2004 first annual DG ECFIN research conference on “Business Cycles and Growth in Europeâ€," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 227, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  5. Patrick Francois & Huw Lloyd-Ellis, 2004. "Investment Cycles," Macroeconomics, EconWPA 0405005, EconWPA, revised 05 May 2004.

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