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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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File URL: http://mpra.ub.uni-muenchen.de/33556/1/MPRA_paper_33556.pdf
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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. RUGE-MURCIA, Francisco J., 2003. "Methods to Estimate Dynamic Stochastic General Equilibrium Models," Cahiers de recherche 2003-23, Universite de Montreal, Departement de sciences economiques.
  2. 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.
  3. Sumru Altug, 1986. "Time to build and aggregate fluctuations: some new evidence," Working Papers 277, Federal Reserve Bank of Minneapolis.
  4. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  5. Joseph Altonji, 1984. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Working Papers 562, Princeton University, Department of Economics, Industrial Relations Section..
  6. Gary D. Hansen & Edward C. Prescott, 1999. "Malthus to Solow," Staff Report 257, Federal Reserve Bank of Minneapolis.
  7. 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.
  8. Francesco Caselli, 2007. "The Marginal Product of Capital," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 535-568, 05.
  9. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Discussion Paper / Institute for Empirical Macroeconomics 24, Federal Reserve Bank of Minneapolis.
  10. Peter N. Ireland, 1999. "A Method for Taking Models to the Data," Boston College Working Papers in Economics 421, Boston College Department of Economics.
  11. Harding, Don & Pagan, Adrian, 2002. "Dissecting the cycle: a methodological investigation," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 365-381, March.
  12. Martin Melecky & Daniel Buncic, 2005. "An Estimated, New Keynesian Policy Model for Australia," Macroeconomics 0511026, EconWPA.
  13. 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.
  14. 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.
  15. Harding, Don, 2002. "Notes on neglected seasonality in the Australian national accounts," MPRA Paper 3699, University Library of Munich, Germany.
  16. 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.
  17. Rodrigo Fuentes & Fabián Gredig, 2007. "Estimating the Chilean Natural Rate of Interest," Working Papers Central Bank of Chile 448, Central Bank of Chile.
  18. 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.
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