Template-Type: ReDIF-Paper 1.0
Author-Name: Kevin Salyer
Author-Name-First: Kevin
Author-Name-Last: Salyer
Author-Name: Kevin Hoover
Author-Name-First: Kevin
Author-Name-Last: Hoover
Author-Workplace-Name: Department of Economics, University of California Davis
Title: TECHNOLOGY SHOCKS OR COLORED NOISE? WHY REAL-BUSINESS-CYCLE MODELS CANNOT EXPLAIN ACTUAL BUSINESS CYCLES
Abstract: Typically real-business-cycle models are assessed by their ability to mimic the covariances and variances of actual business cycle data. Recently, however, advocates of RBC models have used them to fit the historical path of real GDP using the Solow residual as a driving process. We demonstrate that the success of RBC models at matching historical GDP data does not confirm the validity of RBC models. Through simulations we demonstrate that the Solow residual does not carry useful information about technology shocks and that the RBC model does not add incremental information about GDP. RBC models fit historical GDP data entirely because the Solow residual is itself just a noisy measure of GDP.
Length: 0
File-URL: https://repec.dss.ucdavis.edu/files/2RajTjkGZ65PQuaqUcdU6UTg/97-29.pdf
File-Format: application/pdf
Number: 162
Classification-JEL: 
KeyWords: 
Creation-Date: 20030108
Handle: RePEc:cda:wpaper:162