Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach

Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach Abstract Using a Bayesian likelihood approach, we estimate a dynamic stochastic general equilibrium model for the US economy using seven macroeconomic time series. The model incorporates many types of real and nominal frictions and seven types of structural shocks. We show that this model is able to compete with Bayesian Vector Autoregression models in out-of-sample prediction. We investigate the relative empirical importance of the various frictions. Finally, using the estimated model, we address a number of key issues in business cycle analysis: What are the sources of business cycle fluctuations? Can the model explain the cross correlation between output and inflation? What are the effects of productivity on hours worked? What are the sources of the “Great Moderation”? (JEL D58, E23, E31, E32 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach

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Publisher
American Economic Association
Copyright
Copyright © 2007 by the American Economic Association
Subject
Articles
ISSN
0002-8282
D.O.I.
10.1257/aer.97.3.586
Publisher site
See Article on Publisher Site

Abstract

Abstract Using a Bayesian likelihood approach, we estimate a dynamic stochastic general equilibrium model for the US economy using seven macroeconomic time series. The model incorporates many types of real and nominal frictions and seven types of structural shocks. We show that this model is able to compete with Bayesian Vector Autoregression models in out-of-sample prediction. We investigate the relative empirical importance of the various frictions. Finally, using the estimated model, we address a number of key issues in business cycle analysis: What are the sources of business cycle fluctuations? Can the model explain the cross correlation between output and inflation? What are the effects of productivity on hours worked? What are the sources of the “Great Moderation”? (JEL D58, E23, E31, E32 )

Journal

American Economic ReviewAmerican Economic Association

Published: Jun 1, 2007

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