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PERMANENT AND TRANSITORY SHOCKS, AND THE UK BUSINESS CYCLE
Author(s) -
RAVN MORTEN O.
Publication year - 1997
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/(sici)1099-1255(199701)12:1<27::aid-jae421>3.0.co;2-h
Subject(s) - business cycle , economics , econometrics , order (exchange) , vector autoregression , macroeconomics , finance
In this paper the business cycle properties of UK data are investigated using a VAR technique. A Real Business Cycle (RBC) model is formulated. The model includes both permanent and transitory shocks to technology. The business cycle properties of the data and the model are investigated by deriving the expected changes over various forecast horizons from a VAR model. It is found, contrary to evidence in Rotemberg and Woodford (1996), that the model can account for many features of the data and that temporary shocks are pertinent in order to explain the business cycle moments. The main difference between theory and data is present in hours worked. © 1997 by John Wiley & Sons, Ltd.