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FAT-TAIL DISTRIBUTIONS AND BUSINESS-CYCLE MODELS

Published online by Cambridge University Press:  08 October 2013

Guido Ascari ,
Giorgio Fagiolo  and
Andrea Roventini
Guido Ascari
Affiliation:
University of Pavia
Giorgio Fagiolo*
Affiliation:
Sant'Anna School of Advanced Studies
Andrea Roventini
Affiliation:
University of Verona
*
Address correspondence to: Giorgio Fagiolo, Sant'Anna School of Advanced Studies, Pisa, Italy; e-mail: [email protected].
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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.

Keywords

Growth-Rate DistributionsNormalityFat TailsTime SeriesExponential-Power DistributionsLaplace DistributionsDSGE ModelsRBC Models
Type
Notes
Information
Macroeconomic Dynamics , Volume 19 , Issue 2 , March 2015 , pp. 465 - 476
Copyright
Copyright © Cambridge University Press 2013 

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