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Estimating baseline real business cycle models of the Australian economy

  • Harding, Don
  • Negara, Siwage

This paper is concerned with the issues that arise in building a small Dynamic Stochastic General Equilibrium (DSGE) model of the Australian economy. Our ultimate objective is to build a model that can be used to study long run economic growth and the business cycle. We agree with Cooley and Prescot�s (1995) view that these are phenomena to be studied jointly rather than separately. Adopting this view has several implications for what constitutes the essential components of our a model. We see these as being: a major role for a persistent technology shock in driving economic activity; and consistency with a version of the Ramsey-Cass-Koopmans (RCK) exogenous growth model. Without the former it is not possible to generate realistic business cycle features; demand shocks alone are insuffcient see Harding and Pagan (2007). The RCK exogenous growth model remains the simplest model available to encompass the salient features of economic growth which is why we rate it as essential. We also take the methodological stance that it is desirable to obtain a satisfactory baseline model before adding other desirable features such as: money; openness to international trade, capital flows, and immigration; and price and wage stickiness. In short we see small real business cycle (RBC) models as the natural starting point for our work.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33556.

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Date of creation: 26 Feb 2008
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Handle: RePEc:pra:mprapa:33556
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  1. Burnside, Craig & Eichenbaum, Martin, 1996. "Factor-Hoarding and the Propagation of Business-Cycle Shocks," American Economic Review, American Economic Association, vol. 86(5), pages 1154-74, December.
  2. Francesco Caselli, 2007. "The Marginal Product of Capital," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 535-568, 05.
  3. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1993. "Labor Hoarding and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 245-73, April.
  4. Francisco J. Ruge-Murcia, 2004. "Methods to Estimate Dynamic Stochastic General Equilibrium Models," 2004 Meeting Papers 83, Society for Economic Dynamics.
  5. Don Harding & Adrian Pagan, 1999. "Knowing the Cycle," Melbourne Institute Working Paper Series wp1999n12, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  6. Gary D. Hansen & Edward C. Prescott, 2002. "Malthus to Solow," American Economic Review, American Economic Association, vol. 92(4), pages 1205-1217, September.
  7. Harding, Don, 2002. "Notes on neglected seasonality in the Australian national accounts," MPRA Paper 3699, University Library of Munich, Germany.
  8. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-87, December.
  9. Peter N. Ireland, 1999. "A method for taking models to the data," Working Paper 9903, Federal Reserve Bank of Cleveland.
  10. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-50, June.
  11. Kristoffer Nimark, 2009. "A structural model of Australia as a small open economy," Economics Working Papers 1211, Department of Economics and Business, Universitat Pompeu Fabra.
  12. Don Harding & Adrian Pagan, 2000. "Disecting the Cycle: A Methodological Investigation," Econometric Society World Congress 2000 Contributed Papers 1164, Econometric Society.
  13. Joseph Altonji, 1984. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Working Papers 562, Princeton University, Department of Economics, Industrial Relations Section..
  14. Martin Melecky & Daniel Buncic, 2005. "An Estimated, New Keynesian Policy Model for Australia," Macroeconomics 0511026, EconWPA.
  15. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  16. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  17. Sumru Altug, 1986. "Time to build and aggregate fluctuations: some new evidence," Working Papers 277, Federal Reserve Bank of Minneapolis.
  18. Rodrigo Fuentes & Fabián Gredig, 2007. "Estimating the Chilean Natural Rate of Interest," Working Papers Central Bank of Chile 448, Central Bank of Chile.
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