Why crises happen - nonstationary macroeconomics

A. Patrick Minford, Michael Wickens, James Davidson () and David Meenagh

No 8157, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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: Banking crisis; Banking regulation; Bootstrap; indirect inference; Nonstationarity; Productivity; Real business cycle (search for similar items in EconPapers)
JEL-codes: E32 F31 F41 (search for similar items in EconPapers)
Date: 2010-12
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Citations: View citations in EconPapers (10)

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