News driven business cycles and data on asset prices in estimated DSGE models

Stefan Avdjiev

No 358, BIS Working Papers from Bank for International Settlements

Abstract: The existing literature on estimated structural News Driven Business Cycle (NDBC) models has focused almost exclusively on macroeconomic data and has largely ignored asset prices. In this paper, we present evidence that including data on asset prices in the estimation of a structural NDBC model dramatically affects inference about the main sources of business cycle fluctuations. Combined with the large body of evidence that asset price movements reflect changes in expectations of future developments in the economy, our results imply that data on asset prices should always be used in the estimation of structural NDBC models because they contain information that cannot be obtained by using solely macroeconomic data.

Keywords: News Driven Business Cycles; Asset Prices; Estimated DSGE Models; Bayesian MCMC Methods (search for similar items in EconPapers)
Pages: 61 pages
Date: 2011-11
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: News Driven Business Cycles and Data on Asset Prices in Estimated DSGE Models (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:358

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