Comment on Gali and Rabanal's "Technology shocks and aggregate fluctuations: how well does the RBC model fit postwar U.S. data?"

Ellen McGrattan

No 338, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: Gali and Rabanal provide statistical evidence that, in their view, puts into question the real business cycle paradigm in favor of the sticky-price paradigm. I demonstrate that their statistical procedure is easily misled in that they would reach the same conclusions even if their data had been simulated from an RBC model. I also demonstrate that sticky-price models do a poor job generating U.S.-like business cycles with only shocks to technology, the federal funds rate, and government consumption. This explains why Gali and Rabanal need large unobserved shocks to preferences and to the degree of monopoly power.

Keywords: technological innovations; Business cycles - Econometric models (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (11)

Published in NBER Macroeconomic Annual 2004> (Vol. 19, 2005, pp. 289-308)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:338

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