Technology shocks and aggregate fluctuations in an estimated hybrid RBC model

Jim Malley and Ulrich Woitek

No 408, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: This paper contributes to the on-going empirical debate regarding the role of the RBC model and in particular of technology shocks in explaining aggregate fluctuations. To this end we estimate the model�s posterior density using Markov-Chain Monte-Carlo (MCMC) methods. Within this framework we extend Ireland�s (2001, 2004) hybrid estimation approach to allow for a vector autoregressive moving average (VARMA) process to describe the movements and co-movements of the model�s errors not explained by the basic RBC model. The results of marginal likelihood ratio tests reveal that the more general model of the errors significantly improves the model�s fit relative to the VAR and AR alternatives. Moreover, despite setting the RBC model a more difficult task under the VARMA specification, our analysis, based on forecast error and spectral decompositions, suggests that the RBC model is still capable of explaining a significant fraction of the observed variation in macroeconomic aggregates in the post-war U.S. economy.

Keywords: Real Business Cycle; Bayesian estimation; VARMA errors (search for similar items in EconPapers)
JEL-codes: C11 C52 E32 (search for similar items in EconPapers)
Date: 2009-04
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ecm, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Technology shocks and aggregate fluctuations in an estimated hybrid RBC model (2010)
Working Paper: Technology Shocks and Aggregate Fluctuations in an Estimated Hybrid RBC Model (2009)
Working Paper: Technology shocks and aggregate fluctuations in an estimated hybrid RBC model (2009)
Working Paper: Technology shocks and aggregate fluctuations in an estimated hybrid RBC model (2009)
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