Dynamic General Equilibrium Models and the Beveridge-Nelson Facts
Frédéric Dufourt ()
Macroeconomics from University Library of Munich, Germany
Linear and Hodrick-Prescott detrending methods do not provide a good approximation of the business cycle when output contains a unit root. I use the multivariate Beveridge-Nelson decomposition to document the main patterns of US postwar business cycles when output and some other variables are assumed to be integrated I(1) processes. I show that the business cycle identified in this way displays some important differences with those obtained from the preceding methods. I then evaluate the ability of various dynamic stochastic general equilibrium (DSGE) models to replicate the main aspects of this business cycle. Among competing models, I find that the best specification involves an economy hit simultaneously by both technological and monetary shocks, in a context of price stickiness and limited (but insufficient) accommodation by the monetary authorities. Hence, the data favor the model advocated by the New-Neoclassical Synthesis rather than its purely classical (RBC type and flexible price) counterparts.
Keywords: Business cycles; Beveridge-Nelson decomposition; Prices rigidity (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ets and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0501003
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