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A Real Business Cycle Model with Changing Sentiments

Author

Listed:
  • 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, University Library of Munich, Germany.
    • 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: https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0210/0210005.pdf
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    References listed on IDEAS

    as
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    4. 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.
    5. Harding, Don & Pagan, Adrian, 2002. "Dissecting the cycle: a methodological investigation," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 365-381, March.
    6. Gordon, Stephen & St-Amour, Pascal, 1997. "Asset Prices with Contingent Preferences," Cahiers de recherche 9712, Université Laval - Département d'économique, revised 08 Jun 1998.
    Full references (including those not matched with items on IDEAS)

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    • E - Macroeconomics and Monetary Economics

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