News Driven Business Cycles and Data on Asset Prices in Estimated DSGE Models

Stefan Avdjiev

Review of Economic Dynamics, 2016, vol. 20, 181-197

Abstract: We demonstrate that inference from estimated structural News Driven Business Cycle (NDBC) models about the main drivers of fluctuations in macroeconomic variables and asset prices is sensitive to assumptions about the structure of the news shock processes. We show that, when data on asset prices are used in the estimation, a long-run news shock specification has a better fit than the short-run news shock specification which is prevalent the existing literature. The variance decompositions from the former model specification reveal that long-run news shocks are not the main drivers of macroeconomic variables, but do account for the majority of aggregate stock market fluctuations. (Copyright: Elsevier)

Keywords: News Driven Business Cycles; Asset prices; Estimated DSGE models; Bayesian MCMC methods (search for similar items in EconPapers)
JEL-codes: C11 E32 E44 G10 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (14)

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Software Item: Code and data files for "News Driven Business Cycles and Data on Asset Prices in Estimated DSGE Models" (2014)
Working Paper: News driven business cycles and data on asset prices in estimated DSGE models (2011)
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DOI: 10.1016/j.red.2015.01.002

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