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Maximum Likelihood in the Frequency Domain: A Time to Build Example

17 Pages Posted: 6 Apr 1999  

Lawrence J. Christiano

Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Robert Vigfusson

Federal Reserve Board - Trade and Quantitative Studies

Multiple version iconThere are 2 versions of this paper

Date Written: March 1999

Abstract

A well known result is that the Gaussian log-likelihood can be expressed as the sum over different frequency components. This implies that the likelihood ratio statistic has a similar linear decomposition. We exploit these observations to devise diagnostic methods that are useful for interpreting maximum likelihood parameter estimates and likelihood ratio tests. We apply the methods to the estimation and testing of two real business cycle models. The standard real business cycle model is rejected in favor of an alternative in which capital investment requires a planning period.

JEL Classification: E2, E22, E1, C52, C32, C12

Suggested Citation

Christiano, Lawrence J. and Vigfusson, Robert, Maximum Likelihood in the Frequency Domain: A Time to Build Example (March 1999). FRB Chicago Working Paper No. 1999-04. Available at SSRN: https://ssrn.com/abstract=155858 or http://dx.doi.org/10.2139/ssrn.155858

Lawrence J. Christiano (Contact Author)

Northwestern University ( email )

2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8231 (Phone)
847-491-7001 (Fax)

Federal Reserve Bank of Cleveland

East 6th & Superior
Cleveland, OH 44101-1387
United States

Federal Reserve Bank of Chicago

230 South LaSalle Street
Chicago, IL 60604
United States

Federal Reserve Bank of Minneapolis

90 Hennepin Avenue
Minneapolis, MN 55480
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Robert John Vigfusson

Federal Reserve Board - Trade and Quantitative Studies ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States

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