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Business cycle measurement with some theory

  • Canova, Fabio
  • Paustian, Matthias

A method to evaluate cyclical models not requiring knowledge of the DGP and the exact specification of the aggregate decision rules is proposed. We derive robust restrictions in a class of models; use some to identify structural shocks in the data and others to evaluate the class or contrast sub-models. The approach has good properties, even in small samples, and when the class of models is misspecified. The method is used to sort out the relevance of a certain friction (the presence of rule-of-thumb consumers) in a standard class of models.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 58 (2011)
Issue (Month): 4 ()
Pages: 345-361

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Handle: RePEc:eee:moneco:v:58:y:2011:i:4:p:345-361
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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