Evidence on Features of a DSGE Business Cycle Model from Bayesian Model Averaging

Tinbergen Institute Discussion Paper No. 12-025/4

50 Pages Posted: 21 Mar 2012

See all articles by Rodney W. Strachan

Rodney W. Strachan

University of Queensland - School of Economics

H. K. van Dijk

Tinbergen Institute; Econometric Institute

Multiple version iconThere are 2 versions of this paper

Date Written: September 30, 2010

Abstract

The empirical support for features of a Dynamic Stochastic General Equilibrium model with two technology shocks is valuated using Bayesian model averaging over vector autoregressions. The model features include equilibria, restrictions on long-run responses, a structural break of unknown date and a range of lags and deterministic processes. We find support for a number of features implied by the economic model and the evidence suggests a break in the entire model structure around 1984 after which technology shocks appear to account for all stochastic trends. Business cycle volatility seems more due to investment specific technology shocks than neutral technology shocks.

Keywords: Posterior probability, Dynamic stochastic general equilibrium model, Cointegration, Model averaging, Stochastic trend, Impulse response, Vector autoregressive model

JEL Classification: C11, C32, C52

Suggested Citation

Strachan, Rodney W. and van Dijk, Herman K., Evidence on Features of a DSGE Business Cycle Model from Bayesian Model Averaging (September 30, 2010). Tinbergen Institute Discussion Paper No. 12-025/4, Available at SSRN: https://ssrn.com/abstract=2026520 or http://dx.doi.org/10.2139/ssrn.2026520

Rodney W. Strachan (Contact Author)

University of Queensland - School of Economics ( email )

Brisbane, QLD 4072
Australia

Herman K. Van Dijk

Tinbergen Institute ( email )

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