Why crises happen - nonstationary macroeconomics

James Davidson (james.davidson@exeter.ac.uk), David Meenagh, A. Patrick Minford and Michael Wickens

No E2010/13, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: A Real Business Cycle model of the UK is developed to account for the behaviour of UK nonstationary macro data. The model is tested by the method of indirect inference, bootstrapping the errors to generate 95% confidence limits for a VECM representation of the data,we find the model can explain the behaviour of main variables (GDP, real exchange rate, real interest rate) but not that of detailed GDP components. We use the model to explain how `crisis' and `euphoria' are endemic in capitalist behaviour due to nonstationarity,and we draw some policy lessons.

Keywords: Nonstationarity; Productivity; Real Business Cycle; Bootstrap; Indirect Inference; Banking Crisis; Banking Regulation (search for similar items in EconPapers)
JEL-codes: E32 F32 F41 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010-11
New Economics Papers: this item is included in nep-ban, nep-bec, nep-cba, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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