Business Cycles: Fact, Fallacy and Fantasy

Contents......Page 8
Preface......Page 6
1. Introduction......Page 10
2.1. Defining a Business Cycle......Page 16
2.2. Stylized Facts......Page 24
2.3. The Euro Area Business Cycle......Page 28
2.4. Is There aWorld Business Cycle?......Page 34
2.5. Historical Business Cycles......Page 37
3. Models of Business Cycles......Page 42
3.1. An RBC Model......Page 43
3.2. A Numerical Solution......Page 48
3.3. Initial Criticisms......Page 55
3.4. “Puzzles”......Page 57
3.4.1. A Model with Indivisible Labor Supply......Page 58
3.4.2. The Productivity Puzzle......Page 61
3.4.3. Reverse Causality......Page 65
3.5. The Source of the Shocks......Page 67
3.5.1. Investment-Specific Technological Shocks......Page 68
3.5.2. Energy Shocks......Page 72
4.1. Facts......Page 74
4.2. The Role of International Risk Sharing......Page 77
4.2.1. Pareto Optimal Allocations......Page 78
4.2.2. Complete Contingent Claims......Page 80
4.2.3. No Asset Trading......Page 84
4.2.4. Nonspecialization in Endowments......Page 86
4.2.5. Nontraded Goods......Page 87
4.2.6. Trade in Equity Shares......Page 88
4.2.7. Limited Risk Sharing......Page 90
4.3. Other Extensions......Page 96
4.4. Puzzles Revisited......Page 99
5. New Keynesian Models......Page 102
5.1. The Basic Model......Page 103
5.2. Empirical Evidence......Page 108
6. Business Cycles in Emerging Market Economies......Page 110
6.1. A Small Open-Economy Model of Emerging Market Business Cycles......Page 111
6.2. Do Shocks to Trend Productivity Explain Business Cycles in Emerging Market Economies?......Page 115
7. Matching the Model to the Data......Page 118
7.1. Dynamic Factor Analysis......Page 119
7.1.1. Measures of Fit for Calibrated Models......Page 122
7.1.2. Other Applications......Page 125
7.2. GMM Estimation Approaches......Page 126
7.3. The Calibration versus Estimation Debate......Page 128
7.3.1. The Dynamics of Output......Page 129
7.3.2. Calibration as Estimation......Page 130
7.3.3. Nonlinearity in Macroeconomic Time Series......Page 132
7.3.4. The Debate Reconsidered......Page 136
7.4. DSGE Modeling......Page 138
8. Future Areas for Research......Page 146
Bibliography......Page 148
Index......Page 160