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Fat-Tail Distributions and Business-Cycle Models

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Author Info

  • Guido Ascari

    () (Department of Economics and Quantitative Methods, University of Pavia)

  • Giorgio Fagiolo

    () (Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa)

  • Andrea Roventini

    () (University Paris Ouest Nanterre La Defense, Department of Economic Sciences (University of Verona) and Laboratory of Economics and Management (LEM) (Sant'Anna School of Advanced Studies, Pisa))

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 University of Pavia, Department of Economics and Quantitative Methods in its series Quaderni di Dipartimento with number 157.

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Length: 15 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:pav:wpaper:157

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Related research

Keywords: Growth-Rate Distributions; Normality; Fat Tails; Time Series; Exponential- Power Distributions; Laplace Distributions; DSGE Models; RBC Models.;

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References

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  1. Carolina Castaldi & Giovanni Dosi, 2009. "The patterns of output growth of firms and countries: Scale invariances and scale specificities," Empirical Economics, Springer, vol. 37(3), pages 475-495, December.
  2. Giorgio Fagiolo & Mauro Napoletano & Andrea Roventini, 2008. "Are output growth-rate distributions fat-tailed? some evidence from OECD countries," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(5), pages 639-669.
  3. Alejandro Justiniano & Giorgio E. Primiceri, 2006. "The Time Varying Volatility of Macroeconomic Fluctuations," NBER Working Papers 12022, National Bureau of Economic Research, Inc.
  4. Canning, D. & Amaral, L. A. N. & Lee, Y. & Meyer, M. & Stanley, H. E., 1998. "Scaling the volatility of GDP growth rates," Economics Letters, Elsevier, vol. 60(3), pages 335-341, September.
  5. Cogley, Timothy & Nason, James M, 1995. "Output Dynamics in Real-Business-Cycle Models," American Economic Review, American Economic Association, vol. 85(3), pages 492-511, June.
  6. Barro, Robert, 2006. "Rare Disasters and Asset Markets in the Twentieth Century," Scholarly Articles 3208215, Harvard University Department of Economics.
  7. Giulio Bottazzi & Angelo Secchi, 2003. "Sectoral Specifities in the Dynamics of U.S. Manufacturing Firms," LEM Papers Series 2003/18, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  8. 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.
  9. 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.
  10. Carolina Castaldi & Sandro Sapio, 2008. "Growing like mushrooms? Sectoral evidence from four large European economies," Journal of Evolutionary Economics, Springer, vol. 18(3), pages 509-527, August.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Fat-tail Distributions and Business-Cycle Models
    by Christian Zimmermann in NEP-DGE blog on 2012-02-23 03:25:12
  2. What's wrong with economics?
    by chris dillow in Stumbling and Mumbling on 2012-06-10 11:32:34
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Cited by:
  1. Vasco Cúrdia & Marco Del Negro & Daniel L. Greenwald, 2012. "Rare shocks, great recessions," Staff Reports 585, Federal Reserve Bank of New York.
  2. Giorgio Fagiolo & Andrea Roventini, 2012. "Macroeconomic Policy in DSGE and Agent-Based Models," EconomiX Working Papers 2012-17, University of Paris West - Nanterre la Défense, EconomiX.

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