Business Cycle Models and Stylized Facts in Germany
The aim of this paper is to test to what extent a benchmark real and monetary business cycle model can account for some basic stylized facts with a particular emphasis on monetary variables. We calibrate the model on German data using the method proposed by Cooley and Prescott (1995). First we will analyze the dynamic properties of the models, the Impulse Response Functions and propose a variance decomposition (for the monetary BC Models). We find that even though money is not neutral in the short run, the effect of a monetary shock is only marginal compared to the productivity shock, i.e. the share of the variance of the monetary shock in the total variance of the forecast error is small and decreases rapidly. We simulate the models and compare the properties of the model economies with those of the observed data. The evidence suggests that the benchmark RBC model can account for some stylized facts in Germany. The general pattern of the relative volatilities of investment, output and consumption is replicated by the model. Nevertheless, the overall volatility is too high and the level of the relative volatilities is not well reproduced. The introduction of exogenous monetary shocks and a cash-in-advance constraint increases the relative volatilities and the cross correlation of consumption. In general the second order moments of money (M1) and inflation are not well reproduced.
|Date of creation:||01 Oct 1996|
|Date of revision:||00 Apr 1997|
|Contact details of provider:|| Postal: Place Montesquieu 3, 1348 Louvain-la-Neuve (Belgium)|
Fax: +32 10473945
Web page: http://www.uclouvain.be/ires
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gary Hansen, 2010.
"Indivisible Labor and the Business Cycle,"
Levine's Working Paper Archive
233, David K. Levine.
- David K. Backus & Patrick J. Kehoe, 1991.
"International evidence on the historical properties of business cycles,"
145, Federal Reserve Bank of Minneapolis.
- Backus, David K & Kehoe, Patrick J, 1992. "International Evidence of the Historical Properties of Business Cycles," American Economic Review, American Economic Association, vol. 82(4), pages 864-88, September.
- David K. Backus & Patrick J. Kehoe, 1992. "International Evidence on the Historical Properties of Business Cycles," Working Papers 92-5, New York University, Leonard N. Stern School of Business, Department of Economics.
- Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
- Danthine, J.P. & Donaldson, J.B., 1991.
"Methodological and Empirical Issues in Real Business Cycle Theory,"
fb-_91-11, Columbia - Graduate School of Business.
- Pierre Danthine, Jean & Donaldson, John B., 1993. "Methodological and empirical issues in real business cycle theory," European Economic Review, Elsevier, vol. 37(1), pages 1-35, January.
- Jean-Pierre DANTHINE & John B. DONALDSON, 1991. "Methodological and Empirical Issues in Real Business Cycle Theory," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9102, Université de Lausanne, Faculté des HEC, DEEP.
- Fairise, X. & Hairault, J.O. & Langot, F. & Portier, F., 1992. "Ecriture et resolution du modele canonique des cycles reels," Papiers d'Economie MathÃ©matique et Applications 92.30, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1).
- Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
- Plosser, C.I., 1989.
"Understanding Real Business Cycles,"
89-03, Rochester, Business - General.
- 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.
- Martin Eichenbaum, 1990.
"Real business cycle theory: wisdom or whimsy?,"
Working Paper Series, Macroeconomic Issues
90-13, Federal Reserve Bank of Chicago.
- King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, vol. 74(3), pages 363-80, June.
- Lawrence H. Summers, 1986. "Some skeptical observations on real business cycle theory," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 23-27.
- Fiorito, Riccardo & Kollintzas, Tryphon, 1994.
"Stylized facts of business cycles in the G7 from a real business cycles perspective,"
European Economic Review,
Elsevier, vol. 38(2), pages 235-269, February.
- Fiorito, Riccardo & Kollintzas, Tryphon, 1992. "Stylized Facts of Business Cycles in the G7 from a Real Business Cycles Perspective," CEPR Discussion Papers 681, C.E.P.R. Discussion Papers.
- Blackburn, Keith & Ravn, Morten O, 1992. "Business Cycles in the United Kingdom: Facts and Fictions," Economica, London School of Economics and Political Science, vol. 59(236), pages 383-401, November.
- Lucas, Robert Jr. & Stokey, Nancy L., 1983.
"Optimal fiscal and monetary policy in an economy without capital,"
Journal of Monetary Economics,
Elsevier, vol. 12(1), pages 55-93.
- Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Finn E. Kydland & Edward C. Prescott, 1990. "Business cycles: real facts and a monetary myth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-18.
- Peter Brandner & Klaus Neusser, 1992. "Business cycles in open economies: Stylized facts for Austria and Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 128(1), pages 67-87, March.
- Abel, Andrew B., 1985.
"Dynamic behavior of capital accumulation in a cash-in-advance model,"
Journal of Monetary Economics,
Elsevier, vol. 16(1), pages 55-71, July.
- Andrew B. Abel, 1985. "Dynamic Behavior of Capital Accumulation in a Cash-in-Advance Model," NBER Working Papers 1549, National Bureau of Economic Research, Inc.
- Christopher A. Sims, 1996. "Macroeconomics and Methodology," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 105-120, Winter.
- Bennett T. McCallum, 1988. "Real Business Cycle Models," NBER Working Papers 2480, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:ctl:louvir:1997005. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anne DAVISTER-LOGIST)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.