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A Real Business Cycle Model with Changing Sentiments

  • Kirill Sossunov

    (New Economic School)

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.

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File URL: http://128.118.178.162/eps/mac/papers/0210/0210005.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0210005.

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Date of creation: 22 Oct 2002
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Handle: RePEc:wpa:wuwpma:0210005
Note: Type of Document - PDF; prepared on IBM PC; to print on HP/PostScript/Franciscan monk; figures: included
Contact details of provider: Web page: http://128.118.178.162

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  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. Bakshi, Gurdip S & Chen, Zhiwu, 1996. "The Spirit of Capitalism and Stock-Market Prices," American Economic Review, American Economic Association, vol. 86(1), pages 133-57, March.
  4. Don Harding & Adrian Pagan, 2000. "Disecting the Cycle: A Methodological Investigation," Econometric Society World Congress 2000 Contributed Papers 1164, Econometric Society.
  5. 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 S63-84, Suppl. De.
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