Business cycle measurement with some theory |
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Authors: | Fabio Canova Matthias Paustian |
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Affiliation: | a ICREA-UPF, CREI, CREMeD, CEPR, Spain b Bowling Green State University, USA c Bank of England, United Kingdom |
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Abstract: | A method to evaluate cyclical models not requiring 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. The method is used to sort out the relevance of a certain friction (the presence of rule-of-thumb consumers) in a standard class of models. |
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