FAT-TAIL DISTRIBUTIONS AND BUSINESS-CYCLE MODELS

Guido Ascari, Giorgio Fagiolo () and Andrea Roventini

Macroeconomic Dynamics, 2015, vol. 19, issue 2, 465-476

Abstract: Recent empirical findings suggest that macroeconomic variables are seldom normally distributed. For example, the distributions of aggregate output growth-rate time series of many OECD countries are well approximated by symmetric exponential-power (EP) densities with Laplace fat tails. In this work, we assess whether real business cycle (RBC) and standard medium-scale New Keynesian (NK) models are able to replicate this statistical regularity. We simulate both models, drawing Gaussian- vs Laplace-distributed shocks, and we explore the statistical properties of simulated time series. Our results cast doubts on whether RBC and NK models are able to provide a satisfactory representation of the transmission mechanisms linking exogenous shocks to macroeconomic dynamics.

Date: 2015
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Related works:
Working Paper: Fat-Tail Distributions and Business-Cycle Models (2012)
Working Paper: Fat-tail Distributions and Business-Cycle Models (2012)
Working Paper: Fat-Tail Distributions and Business-Cycle Models (2012)
Working Paper: Fat-Tail Distributions and Business-Cycle Models (2012)
Working Paper: Fat-Tail Distributions and Business-Cycle Models (2012)
Working Paper: Fat-Tail Distributions and Business-Cycle Models (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:19:y:2015:i:02:p:465-476_00

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