Stochastic Volatility and DSGE Models

Martin Andreasen

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper argues that a specification of stochastic volatility commonly used to analyze the Great Moderation in DSGE models may not be appropriate, because the level of a process with this specification does not have conditional or unconditional moments. This is unfortunate because agents may as a result expect productivity and hence consumption to be inifinite in all future periods. This observation is followed by three ways to overcome the problem.

Keywords: Great Moderation; Productivity shocks; and Time-varying coe¢ cients (search for similar items in EconPapers)
JEL-codes: E10 E30 (search for similar items in EconPapers)
Pages: 8
Date: 2009-07-07
New Economics Papers: this item is included in nep-bec, nep-dge, nep-ecm, nep-ets and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Stochastic volatility and DSGE models (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2009-29

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