2012/02 | LEM Working Paper Series | ||||||||||||||||
Fat-Tail Distributions and Business-Cycle Models |
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Guido Ascari, Giorgio Fagiolo, Andrea Roventini |
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Keywords | |||||||||||||||||
Growth-Rate Distributions, Normality, Fat Tails, Time Series, Exponential-Power Distributions, Laplace Distributions, DSGE Models, RBC Models
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JEL Classifications | |||||||||||||||||
C1, E3
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Abstract | |||||||||||||||||
Recent empirical findings suggest that macroeconomic variables are
seldom normally distributed. For example, the distributions of
aggregate output growth-rate time series of many OECD countries are
well approximated by symmetric exponential-power (EP) densities, with
Laplace fat tails. In this work, we assess whether Real Business Cycle
(RBC) and standard medium-scale New-Keynesian (NK) models are able to
replicate this statistical regularity. We simulate both models drawing
Gaussian- vs Laplace-distributed shocks and we explore the statistical
properties of simulated time series. Our results cast doubts on
whether RBC and NK models are able to provide a satisfactory
representation of the transmission mechanisms linking exogenous shocks
to macroeconomic dynamics.
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