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A method for taking models to the data

  • Ireland, Peter N.

This paper develops a method for combining the power of a dynamic, stochastic, general equilibrium model with the flexibility of a vector autoregressive time-series model to obtain a hybrid that can be taken directly to the data. It estimates this hybrid model via maximum likelihood and uses the results to address a number of issues concerning the ability of a prototypical real business cycle model to explain movements in aggregate output and employment in the postwar US economy, the stability of the real business cycle model's structural parameters, and the performance of the hybrid model's out-of-sample forecasts.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 28 (2004)
Issue (Month): 6 (March)
Pages: 1205-1226

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Handle: RePEc:eee:dyncon:v:28:y:2004:i:6:p:1205-1226
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  3. 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.
  4. Ireland, Peter N., 2003. "Endogenous money or sticky prices?," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1623-1648, November.
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  8. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
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  10. Ellen McGrattan & Richard Rogerson & Randall Wright, 1995. "An equilibrium model of the business cycle with household production and fiscal policy," Staff Report 191, Federal Reserve Bank of Minneapolis.
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  19. Sumru Altug, 1986. "Time to build and aggregate fluctuations: some new evidence," Working Papers 277, Federal Reserve Bank of Minneapolis.
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  21. Frank Schorfheide, 2000. "Loss function-based evaluation of DSGE models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(6), pages 645-670.
  22. Olivier J. Blanchard & Mark W. Watson, 1987. "Are Business Cycles All Alike?," NBER Working Papers 1392, National Bureau of Economic Research, Inc.
  23. Runkle, David E, 1987. "Vector Autoregressions and Reality: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 454, October.
  24. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  25. Ingram, B.F. & Kocherlakota, N.R. & Savin, N.E., 1992. "Explaining Business Cycles : A Multiple Shock Approach," Working Papers 92-09, University of Iowa, Department of Economics.
  26. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
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  28. Andrews, Donald W K & Fair, Ray C, 1988. "Inference in Nonlinear Econometric Models with Structural Change," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 615-39, October.
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  30. Jinill Kim, 1998. "Monetary policy in a stochastic equilibrium model with real and nominal rigidities," Finance and Economics Discussion Series 1998-02, Board of Governors of the Federal Reserve System (U.S.).
  31. Sargent, Thomas J, 1989. "Two Models of Measurements and the Investment Accelerator," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 251-87, April.
  32. Peter N. Ireland, 2000. "Sticky-Price Models of the Business Cycle: Specification and Stability," NBER Working Papers 7511, National Bureau of Economic Research, Inc.
  33. Christopher A. Sims, 1986. "Are forecasting models usable for policy analysis?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-16.
  34. DeJong, David N. & Ingram, Beth F. & Whiteman, Charles H., 2000. "A Bayesian approach to dynamic macroeconomics," Journal of Econometrics, Elsevier, vol. 98(2), pages 203-223, October.
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  36. David E. Runkle, 1987. "Vector autoregressions and reality," Staff Report 107, Federal Reserve Bank of Minneapolis.
  37. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
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  41. Kim, Jinill, 2000. "Constructing and estimating a realistic optimizing model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 329-359, April.
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