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A Real Business Cycle Model with Changing Sentiments

Author

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  • Kirill Sossunov

    (New Economic School)

Abstract

In this paper the modification of the real business cycles model in which risk aversion parameter of agents’ utility function follows bivariate markov chain is developed and estimated using simulated VAR. The model’s ability to replicate properties of US quarterly data is compared with that of the standard real business cycles model. The main finding is that the model with markov switching performs at least well as the standard model. The model with markov switching also matches some features of the data which the standard RBC model is unable to match.

Suggested Citation

  • Kirill Sossunov, 2002. "A Real Business Cycle Model with Changing Sentiments," Macroeconomics 0210005, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0210005
    Note: Type of Document - PDF; prepared on IBM PC; to print on HP/PostScript/Franciscan monk; figures: included
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    File URL: http://econwpa.repec.org/eps/mac/papers/0210/0210005.pdf
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    References listed on IDEAS

    as
    1. John Y. Campbell & John H. Cochrane, 2000. "Explaining the Poor Performance of Consumption-based Asset Pricing Models," Journal of Finance, American Finance Association, vol. 55(6), pages 2863-2878, December.
    2. Gordon, Stephen & St-Amour, Pascal, 1997. "Asset Prices with Contingent Preferences," Cahiers de recherche 9712, Université Laval - Département d'économique, revised 08 Jun 1998.
    3. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages 63-84, Suppl. De.
    4. Bakshi, Gurdip S & Chen, Zhiwu, 1996. "The Spirit of Capitalism and Stock-Market Prices," American Economic Review, American Economic Association, vol. 86(1), pages 133-157, March.
    5. Harding, Don & Pagan, Adrian, 2002. "Dissecting the cycle: a methodological investigation," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 365-381, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    macroeconomics business cycles;

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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