Business cycle measurement with some theory
Title: Business cycle measurement with some theory
Citation: Journal of Monetary Economics, 2011, Vol. 58, No. 4, pp. 345-361
ISSN: 1873-1295; 0304-3932
A method to evaluate cyclical models not requiring knowledge of the DGP and the exact speci?cation 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 misspeci?ed. 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.
Received 14 February 2010 Received in revised form 21 July 2011 Accepted 27 July 2011 Available online 6 August 2011
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