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The econometrics of the general equilibrium approach to business cycles

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  • Finn E. Kydland
  • Edward C. Prescott

Abstract

The founding fathers of the Econometric Society defined econometrics to be quantitative economic theory. A vision of theirs was the use of econometrics to provide quantitative answers to business cycle questions. The realization of this dream required a number of advances in pure theory?in particular, the development of modern general equilibrium theory. The econometric problem is how to use these tools along with measurement to answer business cycles questions. In this essay, we review this econometric development and contrast it with the econometric approach that preceded it.

Suggested Citation

  • Finn E. Kydland & Edward C. Prescott, 1990. "The econometrics of the general equilibrium approach to business cycles," Staff Report 130, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmsr:130
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    References listed on IDEAS

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    2. In Choi & Peter C.B. Phillips, 1997. "Regressions for Partially Identified, Cointegrated Simultaneous Equations," Cowles Foundation Discussion Papers 1162, Cowles Foundation for Research in Economics, Yale University.
    3. Olkhov, Victor, 2019. "New Essentials of Economic Theory I. Assumptions, Economic Space and Variables," MPRA Paper 93085, University Library of Munich, Germany.
    4. Olkhov, Victor, 2019. "Methods of Economic Theory: Variables, Transactions and Expectations as Functions of Risks," MPRA Paper 95628, University Library of Munich, Germany.
    5. Spanos, Aris, 2008. "The 'Pre-Eminence of Theory' versus the 'General-to-Specific' Cointegrated VAR Perspectives in Macro-Econometric Modeling," Economics Discussion Papers 2008-25, Kiel Institute for the World Economy (IfW Kiel).
    6. Martha Misas Arango & Enrique López Enciso & Diego Vásquez Escobar, 2004. "Tendencias Estocásticas Comunes y Fluctuaciones en la Economía Colombiana: 1950-2002," Borradores de Economia 3550, Banco de la Republica.
    7. Victor Olkhov, 2019. "Financial Variables, Market Transactions, and Expectations as Functions of Risk," IJFS, MDPI, vol. 7(4), pages 1-27, November.
    8. Clemens, Christiane, 2004. "Growth and Labor Income Risk with Inelastic and Elastic Labor Supply," Hannover Economic Papers (HEP) dp-305, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.

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    Keywords

    Econometrics; Business cycles;

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