Sunspot-driven fat tails: A note

Chetan Dave and Marco Sorge

Economics Letters, 2020, vol. 193, issue C

Abstract: Empirical growth-rate distributions of major macroeconomic aggregates are typically non-Normal and exhibit fat tails. We advance the idea that indeterminacies in standard rational expectations models can qualify as a source of high-frequency extreme macroeconomic outcomes. In a univariate setup, we demonstrate the emergence of fat-tailed behavior for an endogenous variable even though structural and sunspot shocks both follow Normal distributions.

Keywords: DSGE; Indeterminacy; Sunspot shocks; Fat tails (search for similar items in EconPapers)
JEL-codes: D80 E32 E37 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:193:y:2020:i:c:s0165176520302032

DOI: 10.1016/j.econlet.2020.109304

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