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Fat-Tail Distributions and Business-Cycle Models

Authors and Corporations: Ascari, Guido (Author), Fagiolo, Giorgio (Author), Roventini, Andrea (Author)
Title: Fat-Tail Distributions and Business-Cycle Models/ Guido Ascari; Giorgio Fagiolo; Andrea Roventini
Language: English
Pavia University of Pavia, Department of Economics and Quantitative Methods 2012
Series: Università degli Studi di Pavia: Quaderni del Dipartimento ; 157.2012
Item Description: Online-Ressource
Type of Resource: Systemvoraussetzungen: Acrobat Reader.
Recent empirical findings suggest that macroeconomic variables are seldom normally dis- tributed. For example, the distributions of aggregate output growth-rate time series of many OECD countries are well approximated by symmetric exponential-power (EP) den- sities, 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 sta- tistical 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.