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Dynamic General Equilibrium Models and the Beveridge-Nelson Facts

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  • Dufourt

    (BETA - University Louis Pasteur)

Abstract

Linear and Hodrick-Prescott detrending methods do not provide a good approximation of the business cycle when output contains a unit root. I use the multivariate Beveridge-Nelson decomposition to document the main patterns of US postwar business cycles when output and some other variables are assumed to be integrated I(1) processes. I show that the business cycle identified in this way displays some important differences with those obtained from the preceding methods. I then evaluate the ability of various dynamic stochastic general equilibrium (DSGE) models to replicate the main aspects of this business cycle. Among competing models, I find that the best specification involves an economy hit simultaneously by both technological and monetary shocks, in a context of price stickiness and limited (but insufficient) accommodation by the monetary authorities. Hence, the data favor the model advocated by the New-Neoclassical Synthesis rather than its purely classical (RBC type and flexible price) counterparts.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0501003.

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Date of creation: 05 Jan 2005
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Handle: RePEc:wpa:wuwpma:0501003

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Web page: http://128.118.178.162

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Keywords: Business cycles; Beveridge-Nelson decomposition; Prices rigidity;

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References

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Citations

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Cited by:
  1. Frederic Dufourt, 2005. "Demand and Productivity Components of Business Cycles: Estimates and Implications," Working Papers halshs-00789009, HAL.
  2. Benhabib, Jess & Wen, Yi, 2001. "Indeterminacy, Aggregate Demand, and the Real Business Cycle," Working Papers 01-09r, Cornell University, Center for Analytic Economics.
  3. Dufourt, Frederic, 2005. "Demand and productivity components of business cycles: Estimates and implications," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1089-1105, September.

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