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Does cointegration matter? An analysis in a RBC perspective

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  • Bisio Laura
  • Faccini Andrea
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    Abstract

    The aim of this paper is to verify if a proper SVEC representation of a standard Real Business Cycle model exists even when the capital stock series is omitted. The argument is relevant as the common unavailability of su¢ ciently long medium-frequency capital series prevent researchers from including capital in the widespread structural VAR (SVAR) representations of DSGE models - which is supposed to be the cause of the SVAR biased estimates. Indeed, a large debate about the truncation and small sample bias a¤ecting the SVAR performance in approximating DSGE models has been recently rising. In our view, it might be the case of a smaller degree of estimates distorsions when the RBC dynamics is approximated through a SVEC model as the information provided by the cointegrating relations among some variables might compensate the exclusion of the capital stock series from the empirical representation of the model.

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    Paper provided by Department of Communication, University of Teramo in its series wp.comunite with number 0066.

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    Date of creation: May 2010
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    Handle: RePEc:ter:wpaper:0066

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    Keywords: RBC; SVAR; SVEC model; cointegration;

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