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Business cycle measurement with some theory

Fabio Canova () and Matthias Paustian

No 8364, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A method to evaluate cyclical models which does not require knowledge of the DGP and the exact specification of the aggregate decision rules is proposed. We derive robust restrictions in a class of models; use some to identify structural shocks in the data and others to evaluate the class or contrast sub-models. The approach has good properties, even in small samples, and when the class of models is misspecified. We show how to sort out the relevance of a certain friction (the presence of rule-of-thumb consumers) in a standard class of models.

Keywords: misspecification; model validation; shock identification; sign restrictions (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Date: 2011-04
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