Dufourt, Frederic: Dynamic Properties of the New Neoclassical Synthesis Model of Business Cycle
World Conference Econometric Society, 2000, Seattle

Frederic Dufourt, Universite de Paris 1
Dynamic Properties of the New Neoclassical Synthesis Model of Business Cycle
Session: C-11-11  Tuesday 15 August 2000  by Dufourt, Frederic
Linear and Hodrick-Prescott detrending methods do not provide a good approximation of the business cycle when output contains a unit root. I use the multivariate Beveridge-Nelson decomposition to document the main patterns of US postwar business cycle when output and some other variables are assumed to be integrated I(1) processes. I show that the business cycle identified in this way displays some important differences with those obtained from the preceding methods. I then evaluate the ability of various dynamic general equilibrium (DGE) models to replicate the main aspects of this business cycle. Among competing models, I find that the best specification involves an economy hit simultaneously by both technological and monetary shocks, in a context of price stickiness and limited (but not sufficient) accommodation by the monetary authorities. Hence, the data favor the model advocated by the New-Neoclassical Synthesis rather than its purely classical (RBC type) or purely Keynesian counterparts.
Submitted paper full-text in .pdf


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