Trends and Cycles: an Historical Review of the Euro Area

J. Barth lemy, Magali Marx and Aurélien Poissonnier
Authors registered in the RePEc Author Service: Jean Barthélemy

Working papers from Banque de France

Abstract: We analyze the euro area business cycle in a medium scale DSGE model where we assume two stochastic trends: one on total factor productivity and one on the inflation target of the central bank. To justify our choice of integrated trends, we test alternative specifications for both of them. We do so, estimating trends together with the model's structural parameters, to prevent estimation biases. In our estimates, business cycle fluctuations are dominated by investment specific shocks and preference shocks of households. Our results cast doubts on the view that cost push shocks dominate economic fluctuations in DSGE models and show that productivity shocks drive fluctuations on a longer term. As a conclusion, we present our estimation's historical reading of the business cycle in the euro area. This estimation gives credible explanations of major economic events since 1985.

Keywords: New Keynesian model; Business Cycle; Bayesian estimation. (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2009
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Trends and Cycles: An Historical Review of the Euro Area (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:258

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