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Comparing Models of Macroeconomic Fluctuations: How Big Are the Differences?

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  • Ghent, Andra
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    Abstract

    I generate priors for a VAR from four competing models of economic fluctuations: a standard RBC model, Fisher’s (2006) investment-specific technology shocks model, an RBC model with capital adjustment costs and habit formation, and a sticky price model with an unaccommodating monetary authority. I compare the accuracy of the forecasts made with each of the resulting VARs. The economic models generate similar forecast errors to one another. However, at horizons of one to two years and greater, the models generally yield superior forecasts to those made using both an unrestricted VAR and a VAR that uses shrinkage from a Minnesota prior.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 180.

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    Date of creation: Aug 2006
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    Handle: RePEc:pra:mprapa:180

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    Keywords: Model Evaluation; Priors from DSGE models; Economic Fluctuations; Hours Debate; Business Cycles;

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