A Cautionary Tale of Fat Tails

Chetan Dave, Scott Dressler () and Samreen Malik ()
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Samreen Malik: New York University Abu Dhabi

No 2022-1, Working Papers from University of Alberta, Department of Economics

Abstract: Several macroeconomic time series exhibit excess kurtosis or “Fat Tails” possibly due to rare but large shocks (i.e., tail events). We document the extent to which tail events are attributable to long-run growth shocks. We show that excess kurtosis is not a uniform characteristic of postwar US data, but attributable to episodes containing well-documented growth shocks. A general equilibrium model captures these observations assuming Gaussian business-cycle shocks and a single growth shock from various sources. The model matches the data best with a growth shock to labor productivity while investment-specific technology shocks drive cycles.

Keywords: fat tails; growth shocks; real business cycles (search for similar items in EconPapers)
JEL-codes: E00 E30 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2022-03-24
New Economics Papers: this item is included in nep-dge, nep-mac, nep-ore and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: A Cautionary Tale of Fat Tails (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2022_001

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