Real Business Cycles: A Reader

By James E. Hartley; Kevin D. Hoover et al. | Go to book overview
Save to active project

CHAPTER 22

8


Evaluating a real business cycle model

Fabio Canova, Mary Finn and Adrian R. Pagan*

Most real business cycle models have been assessed by studying the correspondence of their predictions to a set of stylised facts. This paper argues that such tests are not extensive enough and proposes to evaluate the models using standard econometric procedures. Specifically it is argued that these models should be studied by eliciting the restricted VAR representation underlying them and comparing it with the VAR estimated in an unrestricted way from the underlying data. Allowance is made for cases where the driving forces are integrated and when they are stationary. When forces such as technology shocks are integrated these models produce a specific set of predictions about the cointegrating vectors as well as a set of restrictions upon the dynamics. The approach is illustrated using a real business cycle model estimated by Burnside, Eichenbaum and Rebelo. This model has been subjected to some formal testing based upon stylised facts, and it therefore seems an appropriate one upon which to utilize the formal econometric procedures.


1. INTRODUCTION

In the last decade, real business cycles (RBC) models have gone from the preliminary explorations of Long and Plosser (1983) and Kydland and Prescott (1982) to well developed and tested models such as Burnside; Eichenbaum and Rebelo (1993) and McGrattan (1991). Early models could be regarded as ‘idealised’, in the sense adopted in the philosophical literature summarised in

* Financial support from the U. K. Economic and Social Research Council under grant R000233447 is gratefully acknowledged by both authors. We are indebted to Neil Ericsson for helpful comments.

-431-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited page

Bookmark this page
Real Business Cycles: A Reader
Table of contents

Table of contents

Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen
/ 672

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?