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

18 Pages Posted: 24 Jan 2013

See all articles by Rodney W. Strachan

Rodney W. Strachan

University of Queensland - School of Economics

H. K. van Dijk

Tinbergen Institute; Econometric Institute

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Date Written: February 2013

Abstract

The empirical support for features of a Dynamic Stochastic General Equilibrium model with two technology shocks is evaluated 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.

Suggested Citation

Strachan, Rodney W. and van Dijk, Herman K., Evidence on Features of a DSGE Business Cycle Model from Bayesian Model Averaging (February 2013). International Economic Review, Vol. 54, Issue 1, pp. 385-402, 2013, Available at SSRN: https://ssrn.com/abstract=2206142 or http://dx.doi.org/10.1111/j.1468-2354.2012.00737.x

Rodney W. Strachan

University of Queensland - School of Economics ( email )

Brisbane, QLD 4072
Australia

Herman K. Van Dijk

Tinbergen Institute ( email )

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Econometric Institute ( email )

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