Why Crises Happen - Nonstationary Macroeconomics

30 Pages Posted: 27 Dec 2010

See all articles by James Davidson

James Davidson

Cardiff Business School

David Meenagh

Cardiff University Business School

Patrick Minford

Cardiff University Business School; Centre for Economic Policy Research (CEPR)

Michael Wickens

University of York; Cardiff Business School; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: December 2010

Abstract

A Real Business Cycle model of the UK is developed to account for the behaviour of UK nonstationary macro data. The model is tested by the method of indirect inference, bootstrapping the errors to generate 95% confidence limits for a VECM representation of the data; we find the model can explain the behaviour of main variables (GDP, real exchange rate, real interest rate) but not that of detailed GDP components. We use the model to explain how 'crisis' and 'euphoria' are endemic in capitalist behaviour due to nonstationarity; and we draw some policy lessons.

Keywords: banking crisis, banking regulation, Bootstrap, Indirect Inference, Nonstationarity, Productivity, Real Business Cycle

JEL Classification: E32, F31, F41

Suggested Citation

Davidson, James and Meenagh, David and Minford, Patrick and Wickens, Michael, Why Crises Happen - Nonstationary Macroeconomics (December 2010). CEPR Discussion Paper No. DP8157. Available at SSRN: https://ssrn.com/abstract=1729575

James Davidson

Cardiff Business School ( email )

Cardiff CF10 3EU
United Kingdom

David Meenagh

Cardiff University Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom
+44 29 2087 5198 (Phone)
+44 29 2087 4419 (Fax)

Patrick Minford

Cardiff University Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom
+44 29 2087 5728 (Phone)
+44 29 2087 4419 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Michael Wickens

University of York ( email )

Heslington
York, YO10 5DD
United Kingdom
+44 1904 433 764 (Phone)
+44 1904 433 575 (Fax)

Cardiff Business School ( email )

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
3
Abstract Views
583
PlumX Metrics