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Comparing shocks and frictions in US and euro area business cycles: a Bayesian DSGE Approach
Author(s) -
Smets Frank,
Wouters Raf
Publication year - 2005
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/jae.834
Subject(s) - dynamic stochastic general equilibrium , business cycle , economics , currency , bayes estimator , monetary economics , sample (material) , estimation , econometrics , bayesian probability , macroeconomics , monetary policy , computer science , chemistry , management , chromatography , artificial intelligence
This paper estimates a DSGE model with many types of shocks and frictions for both the US and the euro area economy over a common sample period (1974–2002). The structural estimation methodology allows us to investigate whether differences in business cycle behaviour are due to differences in the type of shocks that affect the two economies, differences in the propagation mechanism of those shocks, or differences in the way the central bank responds to those economic developments. Our main conclusion is that each of these characteristics is remarkably similar across both currency areas. Copyright © 2005 John Wiley & Sons, Ltd.