A Real Business Cycle Model with Changing Sentiments
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.
|Date of creation:||22 Oct 2002|
|Note:||Type of Document - PDF; prepared on IBM PC; to print on HP/PostScript/Franciscan monk; figures: included|
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